Medifast shares dip after report

Company denies stock touting by CEO

January 09, 2007|By Paul Adams and Bill Salganik | Paul Adams and Bill Salganik,Sun reporters

Medifast Inc. shares fell nearly 4 percent yesterday after a business publication reported that the company's outgoing chief executive posted pro-Medifast messages on an Internet chat board using a pseudonym.

Barron's.com reported that Bradley MacDonald, a retired Marine colonel who led the diet products company's comeback in recent years, was reprimanded by directors for posting on a Yahoo Finance message board without identifying himself but he continued posting.

If true, corporate governance experts say, the postings could violate federal "fair disclosure" regulations, which were adopted to stop executives from disclosing important information to selected investors.

Owings Mills-based Medifast took issue with yesterday's article, denying that directors had ever reprimanded or discussed Internet postings with MacDonald, among other things. Board members did not respond to telephone or e-mail messages.

Medifast announced Friday that MacDonald was stepping down as CEO under a previously disclosed succession plan.

Barron's.com also raised questions about a Johns Hopkins study reporting certain medical benefits of the company's products - which Medifast has cited in its marketing materials. Shares of Medifast plunged nearly 15 percent in early trading yesterday before rebounding to close down 41 cents at $11.19 per share.

Barron's.com said MacDonald denied he posted messages under the user name "Bradmed@verizon.net."

Medifast declined to make top executives available yesterday, releasing a statement that didn't directly address whether MacDonald posted the messages in question, or whether he has ever posted messages without identifying himself as the chief executive officer.

"Mr. MacDonald as an individual and the largest single shareholder of Medifast Inc. has taken positions in many forums in the public domain to provide publicly available and factual information or to clarify misperceptions, misinformation and false rumors in the marketplace," the company's statement read.

The company made a similar statement in a letter to the editors of Barron's, which was signed by Michael S. McDevitt, the president and chief financial officer, who will replace MacDonald as CEO in March.

"I believe that stockholders have the right to express historical and publicly available information in all forums," McDevitt wrote.

Nell Minow, co-founder of The Corporate Library, a corporate governance watchdog group, said it would be inappropriate for a CEO to promote his company to potential investors without disclosing his position. The company needs to clarify the situation, she said.

"He may be saying things that are true, but his basis for saying them is a significant fact for people to understand," Minow said.

"I would assume the [Securities and Exchange Commission] will look into this. It is one of the oddest stories that I've heard in a long time," she said.

A Yahoo Finance search yesterday turned up about 10 messages by a user called "brad- med." In one, the writer defends the sale by MacDonald's wife of $2.7 million in company stock, saying that "diversification from the CEO's family when he has announced a `Succession Plan' makes sense."

Another calls attention to a favorable cover story on Medifast that appeared in Baltimore SmartCEO magazine.

One message blasts Barron's over a September article raising questions about the Hopkins study, saying the publication "has become the National Enquirer of the Financial Press."

The article reported that a respected medical journal had declined to publish the Hopkins study results, which seemed to show that a Medifast diet regimen can benefit people with type 2, or adult onset, diabetes.

The rejection was confirmed yesterday by the study's author - Dr. Lawrence J. Cheskin, founder and director of the Hopkins Weight Management Center.

Cheskin said yesterday that one peer reviewer expressed concerns about the small number of participants completing the study.

"That's not to say the study is bad," he said. Cheskin said he is revising the study to submit to a different journal.

Cheskin said he is not a paid consultant for Medifast and does not own any company stock.

Medifast's shares have been highly volatile in the past year, reaching a 52-week high of $21.15 a share in June.

In addition to the management changes, the company said Friday that it is launching a new marketing strategy to expand sales of its diet shakes and protein bars.

paul.adams@baltsun.com

bill.salganik@baltsun.com

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