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We reported a few months ago about the barrage of claims against Herbalife regarding high lead content in several of their products. After a couple months with no word about it, Herbalife has announced that the claims made by the Fraud Discovery Institute. Something smells very fishy here.

We’ve told you all about the FDI and its Founder, Barry Minkow and his determination to take Herbalife down, as well as several other MLM companies, and made claims back in May that the group had scientific proof from independent labs that Herbalife products were dangerous and contained illegal levels of lead (interestingly enough, the letter has been taken down from Fraud Discovery’s website).

Now, Herbalife and the FDI have apparently reached an agreement to avoid any further litigation, and the FDI has retracted its original claims against the nutritional supplement company. No other details of the agreement were made public. But wait a second…if you had alleged scientific proof, was it all just a lie or did FDI disappear for some other reason? Something absolutely doesn’t make sense here.

“It is evident to the Fraud Discovery Institute that Herbalife produces products that are safe, and that the company strives for continuous improvement in product quality,” the company said in a statement. Say what? Minkow has been going after Herbalife with a vengeance listing 3 separate exhibits of “proof” that Herbalife’s products contained excessive amounts of lead. In fact, there was even a lawsuit filed by a woman claiming to suffer from liver damage as a result of the products and the lawsuit broke just days after Minkow’s “findings”.

There is something VERY fishy about what is going on here. This is the second time that a company Minkow and the FDI have gone after all of a sudden reached an agreement with no public announcement of the terms. if the findings were indeed proven to be false (which we would not be surprised by) why didn’t Herbalife sue Minkow and FDI for making false claims? You cant just make claims against a company, show “proof” by “scientists” etc and then retract it after you made the press. That is absurd.

This is the second time in a short period of time that Minkow and FDI have settled against a company they were going after with no report on the settlement. Just last month, USANA reached an agreement and all of a sudden all of the negative statements Minkow and FDI were saying about that company disappeared as well. Maybe this is all in relation to the FDA cracking down on false claims made but from companies in the industry and against them but either way, Minkow is losing a lot of credibility and kudos for both USANA and Herbalife to make this noise go away.

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Now that Barry Minkow has settle his dispute with USANA, its time for the former criminal, and founder of the The Fraud Discovery Institute to look for a new target. Unfortunately for Pre Paid Legal, they are it.

The Fraud Discover Institute released its first ever “Top 10 Red Flags for Fraud” list and it details many alleged claims of fraud and misrepresentations made against Pre-Paid.

The list is backed by MLM expert, Robert Fitpatrick, who explains the sources and mathematical equations used to back up the claims on the top ten list, “News media exposes and lawsuits have combined with a mathematic threshold of ‘information saturation’ to bring [Pre-Paid Legal] to this position of lost faith within its market. The saturation point is based on the mathematical limits that the company has already reached in the North American market. Unlike other multi-level marketing schemes that also quickly saturate home markets, [Pre-Paid Legal] cannot expand to other countries with its current product offering.”

Minkow used a strange analogy when describing the motivation behind the creation of the list, saying that they list was designed to show a similarity between Pre-Paid’s recent second quarter announcement and an iceberg, “Both an iceberg and Pre-Paid Legal’s reporting of their earnings have one thing in common: Their true realities exist below the surface and are concealed from the casual observer’s sight.”

The list is a compilation of claims about the company withholding info about recruitment, reporting less than accurate numbers, declining sales, declining number of associates and artificially inflating stock prices.

Minkow, along with the FDI spent years torturing USANA, and now that everything has been settled, he had to find a new target. Unfortunately for Pre-Paid Legal, they are it. Minkows new website dedicated to bringing down Pre-Paid (prepaidillegal.com) is pretty fancy and it seems as if he is really committed to bringing Pre-Paid down. I’m sure there will be much more to the story as Pre-Paid responds to the allegations made by the FDI.

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We have been covering the whole USANA saga to go private and Wentz and co. offering first $26 to take the company private and then upping their offer to $28 before getting completely rejected...twice.

Well what is most interesting is how Wall Street has reacted to the news to abandon talks to go private and the settlement with Barry Minkow. In literally a week, USANA’s stock (NASDAQ: USNA) has seen a huge jump from $28 (Wentz and co. last bid) to a close of $38.15 today - a 38% increase!

For those that may or may not follow MLM public companies, it is very rare to see such growth in a short period of time. No question that all of the news the company has been able to put behind them has helped but another theory comes to mind and that is Wentz had absolutely nothing to lose if his bid was rejected and everything to gain.

For one, USANA got a lot of free publicity out of the talks which gave them greater exposure to trading desks around the country and world. The other key component as we had pointed out since Wentz is the largest shareholder, the rejection by the independent counsel which was hired to review the offer (and later rejected as being far too low) only showed that Went’z stock was undervalued to begin with and people should start buying it up. GENIUS!

So where does that leave Wentz and Gull Holdings today? Combined they own over 16m shares which means they have made (on paper) roughly $160 Million in a week! Not a bad return for making a low-ball offer on your own company huh?

Whether this was planned from the start or is a product of the outcome, I give a lot of credit to Wentz and Gull for the results. It was a brilliant plan that was executed almost flawlessly with incredible results. Oh, and it doesn’t hurt that Minkow is now out of the picture as well.

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We got word that USANA has settled their lawsuit with Barry Minkow and the Fraud Discovery Institute.

In exchange for dropping the lawsuit against Minkow, both Minkow and the FDI agreed that they will no longer trade USANA stock (NASDAQ: USNA). In addition, the FDI will remove all information regarding USANA within their control from their website and will cease from publishing any future statements about the company.

Minkow, who is a convicted criminal, served eight years in jail for stock fraud and when released decided to dedicate his life to torturing network marketing companies (Nu Skin), (Herbalife) and attempting to manipulate their stocks.

Minkow came out with his first negative report about Usana in February of 2007. Minkow went on to buy “put” options on the stock betting that the price would fall. USANA responded by suing both Minkow and the FDI for defamation and stock manipulation.

Apparently after a lengthy battle, both parties were ready and willing to come up with a compromise although it is very unclear what Minkow gets out of this since it seems he has given up all future chances to attack the company but it seems awfully strange that Minkow would agree to no longer trade the stock and will stop talking about USANA.

Hopefully each party is satisfied with the ruling and they can resume business. Minkow is free to torture and manipulate other companies, and USANA, who is in the midst of a corporate restructuring after a failed attempt to go private, can put another legal battle behind them and move on with creating and distributing its nutritional products.

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