SEC Probe Into Barry Minkow's Fraud Discovery Institute Continues
June 11 2010 - 2:27PM
Dow Jones News
Former fraudster turned self-styled fraud investigator Barry
Minkow said he and his firm, Fraud Discovery Institute, are the
subject of a probe by the U.S. Securities and Exchange
Commission.
The SEC in January sent subpoenas to Minkow, FDI and other
parties thought to have ties to Minkow and his firm. Minkow said he
is the target of the investigation, though the SEC doesn't make
this clear in communications accompanying the subpoenas.
The SEC states the "investigation is a non-public, fact-finding
inquiry," intended "to determine whether there have been any
violations of the federal securities laws," according to copies of
three of the subpoenas and related materials reviewed by Dow Jones
Newswires.
An SEC spokesman declined to discuss the matter. In the
subpoenas, the SEC says the investigation, titled "In the Matter of
Fraud Discovery Institute," doesn't mean that it has concluded that
the subpoena recipients "or anyone else" has broken the law, nor
does it mean that the agency has a "negative opinion of any person,
entity or security."
Minkow has been a vocal critic of several public companies, and
has issued scathing reports on the FDI website that have prompted
some target companies to both sue Minkow and press the SEC to
investigate him. These companies claim Minkow spreads false
information to harm the price of their shares, which enriches
Minkow and his cohorts via short positions they place in hopes that
the securities fall in value.
Minkow acknowledges that he takes short positions in some of the
companies he criticizes, and said he shared with the SEC his
trading account names and passwords so the agency has a complete
record of all his transactions.
Minkow served seven years in prison for the fraud that was his
ZZZZ Best Co. carpet-cleaning business, which collapsed about 23
years ago. He became a Christian minister in prison and then became
an independent fraud investigator following his incarceration.
The subpoenas also ask, among other things, for all
communications regarding six companies FDI has criticized: InterOil
Corp. (IOC), Lennar Corp. (LEN, LENB), Pre-Paid Legal Services Inc.
(PPD), Medifast Inc. (MED), Herbalife Ltd. (HLF) and Usana Health
Sciences Inc. (USNA).
Aside from those subpoenaed, the SEC wants information on all
contacts the recipients had with more than two dozen other people,
including two journalists with Dow Jones Newswires, Ben Dummett in
Toronto and Michael Rapoport in New York, who have both covered
InterOil. Neither of the two journalists has received any subpoenas
or other requests from the SEC related to the Fraud Discovery
investigation, nor has Dow Jones Newswires.
The SEC also wants to know, according to the subpoenas, about
Minkow's involvement with Whitney Tilson, who runs a $135-million
New York hedge fund. Tilson declined to reveal whether he had been
subpoenaed, but said he has known Minkow for years, has paid him
for his services and believes there is "no one more qualified" to
uncover the kinds of frauds that help investors feel secure that
their negative bets on companies are well founded.
Tilson said there is a fine line between the SEC investigating
legitimate potential wrongdoing and the agency being used by
companies. He said he is "very confident Barry Minkow will be
exonerated."
Michael Tanczyn, Medifast general counsel, said Medifast did
complain to the SEC about Minkow and FDI, but "it is our
understanding that the SEC does not or will not tell us what
they're doing." He said Medifast conducted its own investigation of
Minkow's allegations against it and determined they were "false,
misleading and without merit."
The other five companies either declined to comment or didn't
respond to interview requests.
Minkow said he has complied with the subpoenas, including
submitting a lengthy narrative explaining his actions in detail. He
calls the investigation an attempt by the companies he has attacked
to use regulators to muzzle him. The SEC will see he and his firm
have broken no securities laws, Minkow said, and he hopes afterward
the SEC will turn its attention to the companies pressing for this
investigation.
In a post last Friday on his FDI website, Minkow acknowledged
the investigation, and said it is coming to light only recently
because the office of Rep. Anthony Weiner (D., N.Y.) leaked the
information to the press. Weiner, whose office denies any
involvement in alerting the media to the situation, recently
criticized gold-coin company Goldline International, and Minkow
issued a report defending Goldline.
Goldline issued two press releases taking issue with the
congressman's findings, and said it wasn't given the opportunity to
"correct the misstatements in his report." Goldline said it
complies with all applicable laws, noted its "A+" rating with the
Better Business Bureau and 50-year history, and said it has "the
most comprehensive written disclosures in the precious metals
industry."
Minkow, who takes credit for uncovering some $1.8 billion in
frauds, calls Weiner's report a politically motivated shot, as
Goldline is a sponsor of conservative radio and television host
Glenn Beck, a fierce critic of Democrats. Beck has a show on the
Fox News Channel, which like this newswire is owned by News Corp.
(NWS, NWSA).
-By Maxwell Murphy, Dow Jones Newswires; 212-416-2171;
maxwell.murphy@dowjones.com
Pre Paid Legal (NYSE:PPD)
Historical Stock Chart
From Jun 2024 to Jul 2024
Pre Paid Legal (NYSE:PPD)
Historical Stock Chart
From Jul 2023 to Jul 2024