Medifast, Meet Barbra Streisand

Ms. Streisand, I'd like you to meet another dumb lawsuit plaintiff

In an item the other day I described how a lawyer for Shaquille O'Neal, suitably named "Roach," had sent a threatening "cease and desist" letter to blogger Tim Sykes, demanding that Tim remove all refrences to a company tied in to O'Neal called NXT Nutritionals Holdings Inc.

Doing so was dumb as hell, because all the Roach did was to amplify Tim's claim that NXT is a "pump and dump"--something known as the "Streisand Effect," after an equally dumb lawsuit the singer once filed. All the suit filed by Streisand accomplished was to disseminate a photograph she was trying to suppress.

Roach was pretty dumb, but I've found someone even dumber--a company called Medifast Inc. Repeat: Medifast Inc. (just want to be sure you noticed) that is suing Barry Minkow, his Fraud Discovery Institute, forensic accounting ace Tracy Coenen and a bunch of other people, including an anonymous person on a Yahoo! message board, for saying naughty things about the poor wittle dahling mutlilevel marketer.

Here is Tracy's post on the suit, and here is a post from Sam Antar asking Medifast why it hasn't responded to the allegations that have arisen concerning the firm.

As with NXT, I have no opinion on Medifast except that a suit like this is just plain stupid. All it is going to accomplish is to disseminate Minkow's claims to people like myself who don't follow such things and ordinarily couldn't care less.

Sam points out:

The lawsuit alleges that Barry Minkow orchestrated an illegal scheme to drive down the stock price of Medifast shares to profit from short selling. However, Minkow has a first amendment right to critique or to use your words "bash" Medifast, notwithstanding the fact that he publicly disclosed that he holds a short position in your company and is a convicted felon. Minkow's opinion and analysis is backed up by very detailed reports prepared for Fraud Discovery Institute by Mr. FitzPatrick and other data made fully available to the public for examination and scrutiny.

The Defendants will certainly assert "truth" as a defense to claims of defamation made against them in this lawsuit. That same kind of truth led a federal Judge in Utah to dismiss Usana's (NASDAQ: USNA) frivolous defamation claims against Fraud Discovery and Barry Minkow and award them legal fees covering their Court costs.

I remind you that discovery in civil litigation is a two-way street. Minkow and the other Defendants can now subpoena all of Medifast's books, records, and documents and closely scrutinize them to look for any possible improprieties and irregularities in defending themselves in this litigation. In addition, they can subpoena documents from Medifast's auditors, vendors, customers, and other business relationships. You and others will be subject to sharp questioning under oath in pre-trial depositions by the Defendant's attorneys. Now Medifast's business documents will ultimately become subject to close public examination and careful scrutiny if this case goes to trial.

Medifast, meet Barbra Streisand.

© 2010 Gary Weiss. All rights reserved.

Shaquille O'Neal, Meet Barbra Streisand

Shaq's lawyer wants a blogger to STFU

I must confess at the outset that I don't know a thing about basketball, nor am I much of a fan of Barbra Streisand. However, I would like to use this post in order to introduce Shaquille O'Neal to Ms. Streisand, as the basketball star's effort to silence a blogger is a classic case of the Streisand Effect.

In 2003, Ms. Streisand sued a photographer who photographed her Malibu home from an airplane. As The Guardian recounts in its article on this phenomenon:

In striving to protect her privacy, however, the actor only stirred up outrage among internet users – nearly half a million of whom looked up the offending image over a single month. And so, as Barbra might say, A Rule Was Born – that when a celebrity tries to take information off the internet, the selfsame nugget will receive exponentially more attention.

Now, Shaquille O'Neal is not suing anybody. But a gent identifying himself as Shaq's "general counsel," a lawyer in Los Angeles by the name of Dennis A. Roach, yesterday wrote what is known in the legal biz as a "cease and desist letter" to a blogger named Tim Sykes, who runs a blog that can be found at http://www.timothysykes.com/.

Tim focuses on penny stocks--he has a system that, he says, can produce profits from the trading of same--and he has been bearing down on a stock called NXT Nutritionals Holdings Inc. The stock symbol is NXTH.

I repeat, the stock is called NXT Nutritionals Holdings Inc. And its symbol is NXTH.

OK, I just wanted to be sure you noticed that.

Anyway, I have never heard of the stock and have no opinion on it. But in past blog posts, which you can find here. Tim has referred to NXTH as a "pump and dump," and has pointed out that the aforementioned Mr. O'Neal is its official spokesman. One post pointed out:

By the end of 2012, regulatory filings show, NXTH must give O’Neal 3 million shares of company stock in exchange for his publicity services. He was scheduled to receive the first 1 million shares back in November, filings show, and can start selling them at the beginning of February. At that point, he will be free to sell up to 20,000 NXTH shares a day (but no more than 100,000 shares a month) if he chooses to do so.

Clearly, NXTH could face some intense selling pressure – potentially crushing ordinary shareholders – if private investors like O’Neal start dumping their stock next month.

C’mon Shaq, aren’t you rich enough? Don’t you have any better financial advisors than your current ones who got you into bed with such snakes?

He went on to call the company a "blatant pump and dump."

Along comes Roach. Now, keep in mind that he does not represent the party that would presumably be offended by being called a "pump and dump," which is NXT Nutritional Holdings Inc. He represents O'Neal.

In his letter, Roach contends that in a Feb. 7 post entitled "Shaquille O’Neal’s Alleged Pump & Dump Is Up Nearly 100% Due To This $320,000 Promotional Mailer" (he added the word "alleged" to the title after getting the Roach letter). . .

. . .you state that Mr. O'Neal is involved in a pump and dump scheme. . . As you well know, 'pump and dump' is a fraudulent activity, consequently your public statements are false and defamatory, and greatly damage [sic] to Mr. O'Neal's reputation.

The Roach letter goes on to "demand that you immediately remove all of these postings from your website, blogs, Twitter accounts and any other form of public dissemination."

The letter says that time is of the essence, and these here posts gotta come down now!

It's a tough little letter with one deficiency: it doesn't point out anything inaccurate in Tim's blog posts.

Tim published another post today, you can find it here, asking, "Is This Shaquille O’Neal Penny Stock A Pump & Dump? Help Me Decide!"

. . . trust me when I say if you get a threatening letter (the first you’ve ever received in 2+ years writing this blog) from one of the richest and most powerful athletes in the world, no matter how true your statements are, you think about taking your little blog post down ASAP.

But as I reread my post I was reminded again of the importance of publically exposing pump and dumps and that I was providing my readers with information that was 100% true and supported by the publicly available sources which I quoted…after all, it’s not my fault that Shaq and/or his attorneys don’t understand that NXT Nutritionals Holdings Inc. (NXTH) looks very much like a pump & dump…perhaps if I educate them, while educating everyone else through this blog, perhaps then, the threats would disappear and Shaq and his attorneys, would not threaten me, but instead thank and congratulate me for teaching them, as everyone else does.

And on it goes. As for me, I've got a lot better things to do, but I'm now very interested in this little company and this big guy.

Shaquille O'Neal, meet Barbra Streisand.

© 2010 Gary Weiss. All rights reserved.