Why Did Herbalife Pay Felon Barry Minkow $300,000?: Greenberg

Herbalife 24
Tiffany Rose | WireImage | Getty Images
Herbalife 24

Four years ago then-convicted felon Barry Minkow, who had turned from white-collar criminal to claiming to be white-collar fraud-buster, had a new target: Herbalife, the multi-level marketing company best known for its weight-loss shakes.

Shares of Herbalife tumbled 20 percent Tuesday after hedge fund manager David Einhorn asked several questions on the company’s earnings call. I started raising questionsabout the company in March.

Minkow’s concerns were a laundry list of issues. He even included a taunting video, with the tagline, “Should this company try to sue us, it’s been tried and tossed.”

Herbalife responded, saying that “we stand behind the integrity of our company.”

Then, several months later, Minkow’s criticisms of Herbalife disappeared from his website.

Why? According to court documents, Herbalife paid Minkow $300,000 to shut up.

Disclosure of the payment can be found in a September 2010 deposition of forensic accountant Tracy Coenen by Medifast, another company with ties to multi-level marketing, which sued Coenen and others who had been associated with Minkow.

In the deposition, an attorney for Medifast asked: “Were you aware that Mr. Minkow received a $300,000 settlement” from Herbalife?

Coenen responded, “No, but thank you for telling me.”

Medifast: “So I take it you didn’t receive any portion of that settlement.”

Coenen: “No.” (She was dismissed from the Medifast case.)

Minkow, who served seven years in prison for being the mastermind behind the ZZZZ Best fraud, is now serving five years in prison for conspiring to manipulate Lennar, another company he had targeted.

The bigger question: Why would Herbalife have paid him to go away?

In response to my question, Herbalife said: “Minkow is a convicted criminal who is back in prison for spreading misinformation for profit through short selling. As we have told the press before, we settled with him to avoid the time, expense and distraction of protracted litigation. Today, however, we are totally committed to using every resource to defend against any misrepresentation by short sellers, their accomplices and associates.”

My take: My sense is that in classic bull/bear fashion, the battle over this stock has just begun.

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