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The institute has had to wiggle out of legal tussles, as short sellers often must. In September 2007, the Reader publicized Minkow’s 500-page, footnoted report on Usana Health Sciences, a multilevel marketing organization. Among many things, Minkow learned that two of the company’s key officials, Denis Waitley and Ladd McNamara, both of San Diego County, did not have the credentials they claimed to have. Both resigned. Minkow had shorted the stock and had fully revealed his position. Usana sued. A federal judge decided most of the counts in Minkow’s favor. Later, Usana and the institute made a confidential settlement of remaining issues.

In 2008, Minkow’s institute revealed that the president of Herbalife, another multilevel marketing operation, did not have the MBA degree he claimed to have. He admitted his deception and resigned. The stock plunged immediately, and Minkow made $50,000 on his short position. But after Herbalife sued, Minkow retracted statements by the institute about the company’s products and business plan. He cannot discuss either case. Now, another company he attacked, Medifast, is suing. Minkow has reacted by stepping up his attacks.

Right now, he is shorting stocks of some of the companies he is exposing, such as InterOil and Pre-Paid Legal. But he didn’t short shares of the big builder Lennar, whose stock plunged after the institute’s exposé of alleged accounting tricks. “I didn’t want to distract from the seriousness of the charges,” he says. Lennar, too, has sued. All told, “Counting expenses, we do a little better than break even shorting,” says Minkow.

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Comments

SurfPuppy619 March 24, 2010 @ 2:02 p.m.

Michael Lewis's new book, "The Big Short" looks into investors that had shorted sub-prime mortgages and made a killing in 2008;

http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0393072231/ref=sr_1_1?ie=UTF8&s=books&qid=1269464512&sr=1-1

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Don Bauder March 24, 2010 @ 2:39 p.m.

Response to post #1: I have to get Lewis's book. The reviews are uniformly good. Best, Don Bauder

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BlaineGame March 24, 2010 @ 9:15 p.m.

I've followed this issue for a while and have yet to hear Byrne attack short sellers. He's mad at naked short sellers, and you should be too, Don, because it's illegal. That's a distinction with a pretty hefty difference, as I think anybody who understands the market will agree.

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Don Bauder March 24, 2010 @ 10:47 p.m.

Response to post #3: The column mentions Byrne's attack on naked shorts. His lawsuit against the big Wall Street houses is on that topic. But my reading of what he has said suggests he has attacked normal short sellers, too. Naked shorting is illegal, yes. It's hard to detect. Best, Don Bauder

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Dennis March 29, 2010 @ 11:58 a.m.

"They borrow a stock, sell it, and hope to replace the borrowed shares later at a lower price."

What does the person from whom the stock was borrowed get out of the deal? Why would anyone loan a stock to someone with no guarantee of a positive return?

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Don Bauder March 29, 2010 @ 12:01 p.m.

Response to post #5: The investor who loans the stock gets paid -- usually well. Best, Don Bauder

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Visduh March 31, 2010 @ 11:15 a.m.

Small-fry investors, or those who really need the money they are putting at risk should eschew shorting. It is a wonderful way to lose your shirt. Too many things are stacked against the short-seller. Without some illegal inside knowledge, you'll probably find that you lose more than you gain. And if you use illegal insider info, and it is detected, which happens from time to time, you'll be forced to divest the ill-gotten gains and also pay a fine.

Shorting is for pros, not amateurs. I tried it once, a long time ago, and learned that fast.

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Don Bauder March 31, 2010 @ 12:39 p.m.

Response to post #7: I agree with you. Amateur investors shouldn't short. I would never do it. (I once shorted against the box, or shorted a stock I already owned to freeze its price in a bear market, and I lost at that.) First, the cards are stacked against shorts. The Federal Reserve and U.S. government are doing everything in their power to run stocks up. (I just wish they had as much interest in the economy.) Shorts are swimming upstream. Many consider them anti-patriotic. However, a pro who realizes that an individual stock is extremely overpriced (possibly because of fraud), can short, but even that can be a losing proposition. Shorts can lose even though they are absolutely right about a company's prospects. Best, Don Bauder

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SurfPuppy619 April 1, 2010 @ 12:15 a.m.

Shorting is for pros, not amateurs. I tried it once, a long time ago, and learned that fast.

One of the hedge funds Mike Lewis covers in his book "The Big Short" was a guy in Silicon Valley, a doctor turned fund manager, and he went through the sub prime mortgage propsectus' of all the big invetsment banks and KNEW they were garbage. He just needed to make a good calculated guess at when those mortgages/CDO's would implode, and he guessed right and made billons.

This guy was apparently one of just a handful who figured it out-and he certainly did his homework pulling the info out of the disclosures.

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Don Bauder April 1, 2010 @ 7:36 a.m.

Response to post #9: I haven't read Lewis's book yet, but I have heard about that story. Trouble is, even if you KNOW something is garbage, you could still lose. Remember, the government will bail out these big banks selling garbage. Best, Don Bauder

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