The Fraud Discovery Institute says diet food company Medifast's outside accounting firm, Bagell, Joseph's & Levine & Co. LLC — which runs its own money management firm — recommended the company's stock to clients, creating a conflict of interest.

The Baltimore Business Journal writes:

The Fraud Discovery Institute Inc., which has no regulatory authority over public companies, said Medifast's outside accountants also operate a wealth management firm that recommended the stock. New Jersey-based accounting firm Bagell, Josephs & Levine & Co. LLC also operates BJL Wealth Management LLC.

The San Diego firm made the conclusion after a six-week investigation. If true, the relationship would be a conflict of interest.

Medifast CEO Michael McDevitt dismissed the institute's claims. "The facts are far from accurate," he said.

Medifast, one of Baltimore's fastest-growing companies, chose the accounting firm because it specializes in companies that have a relatively small market capitalization, McDevitt said.

"The allegations are false, misleading and incorrect," Bagell, Josephs Managing Partner Carl Bagell said. The company cannot make any further comment, he said.

The Institute wrote a letter to SEC attorney Michael Brown, who says "it would appear BJL's independence as Medifast's outside auditor has been compromised," and hinted that the SEC will investigate whether Medifast paid BGL unreported compensation.

Lesson for investors: It's worth your time to look into the background of your financial manager to spot potential conflicts.

Fraud Discovery Institute accuses Medifast accountant of impropriety [Baltimore Business Journal]