It seems that the executives of online retailer Overtsock.com may want to invest in a good dictionary.

According to the transcript of today’s earnings call, they said:

A few weeks ago, a court barred Vonage Holdings Corp. from signing up new customers for its internet phone service while its appeal of a patent infringement case is pending. The U.S. Court of Appeals issued a stay of the injunction and this had a positive impact on Vonage’s stock. In March a jury ruled that Vonage had infringed on patents held by Verizon.

Richard Scrushy, founder of HealthSouth Corp. will pay $81 million to settle Securities and Exchange Commission claims. The payment includes $77.5 million in gains and a $3.5 million penalty, but he has already been credited with $71.5 million toward this for money he has already forfeited.

Scrushy was charged with accounting fraud and insider trading in 2003.? These charges were on hold during his criminal trial, which ended in acquittal on all 36 counts. He has supposedly incurred over $30 million in legal fees related to the fraud at HealthSouth.

Welcome to the carnival!

DigeratiLife talks about getting rich the easy way: by cheating. The post references stock option backdating, which has happened at many companies, and has put lots of money in the pockets of those receiving the options.

The Better Business Bureau blog takes a trip down memory lane with Charles Ponzi and helps consumers avoid modern investment scams.

SoxFirst points us to a KPMG Forensic study of those committing corporate fraud, who are most often male, high-level, and trusted.

The BizOp briefs us on Oprah’s recent show about avoiding scams. Michael wasn’t all that impressed with the show.? He suggests that Oprah should look into the network marketing scams of today, and I wholeheartedly agree!

Sam Antar details a timeline of events involving Overstock CEO Patrick Byrne and Overstock employee Judd Bagley, and it seems someone wasn’t telling the whole truth!

Zac Bissonnette over at BloggingStocks tells how Usana Health Sciences invoked the Chewbacca Defense last week during their conference call. (Watch the video – it will all make sense!)

And we round out this week’s Carnival of Fraud with my comments on the fact that Usana executives say it doesn’t matter that almost no one makes money with their “business opportunity” because almost no one wants to make money anyway!

Submit your article for next week’s carnival here!

Wal-Mart is denying allegations that it investigated stockholders who submitted resolutions for the upcoming annual meeting. The Wall Street Journal reported earlier this month that Wal-Mart “directed its surveillance operations at critical shareholders,” citing a January 2007 memo. But CEO H. Lee Scott Jr. denies that the company investigated shareholders or conducted surveillance on them.

Joseph Nacchio, the former CEO of Qwest Communications International was found guilty of 19 counts of insider trading. He was acquitted on the other 23 counts charged.The crux of the Nacchio case was whether or not he knowingly and willfully sold Qwest stock while he had access to insider information. Nacchio said he did not – that he was distracted by his son’s suicide attempt and wasn’t focused on the stock sales.

The jurors heard evidence, however, that on an April 2001 investor call, Nacchio withheld certain information that would have shown Qwest was in danger of not reaching earnings targets. A few days later, Nacchio was selling his stock.

Also presented at the trial was evidence that Nacchio was attempting to prop up the stock with “questionable” accounting practices, including counting one-time revenue swaps with other companies as long-term revenue. The prosecutors, however, could not tell the jury that Qwest restated the financial statements by $2.48 billion in 2000 and 2001.

Nacchio’s defense was that his stock sales were no different compared to his past stock activity. His defense attorneys also tried to show that Nacchio was overcome by family issues and did not focus on propping up the Qwest stock price for his own benefit.

Nacchio faces up to life in prison, but legal experts say he will get less. Each guilty count also carries a fine of at least $1 million, and Nacchio might have to give up the $52 million gross proceeeds of the stock sales on which he was convicted. Nacchio’s lawyer says they will appeal.

Zac Bissonnette over at BloggingStocks has another great post about Usana Health Sciences. He listened to the earnings call on Wednesday, and seems to be just as surpised as I was.

Surprised? Yes. Surpised that the executives (Dave Wentz and Gil Fuller) would go so far as to make certain apparent misrepresentations about the [tag]Usana[/tag] distributors.

Zac has some questions about this “only 12% of distributors really want to make money” statement by Gil Fuller. Zac wonders how the huge attrition rates in the first year (at least 75% quit in the first year… maybe up to 90%) tie into the figure. If so many are in Usana just for the vitamins, why are they quitting so fast? Or is the 12% figure a total [tag]fraud[/tag], aimed at getting rid of the questions?

I think the Usana executives are foolishly grasping at straws here. Instead of being upfront about the real numbers and explaining why almost no one makes money in Usana… they’ve been busy relying on the “he’s a felon” defense.

Nice [tag]detective[/tag] work. Guess what guys? We already knew Barry Minkow was a felon, and that didn’t stop him from investigating a whole bunch of companies and receiving a commendation letter from the FBI.

So what’s the plan now? More diversion, it seems. And they’ve been getting away with it. None of the Wall Street Analysts seems capable of asking Usana a hard question. Why is that? For them, Usana’s diversion is working. For the rest of the world, we’ll just have to wait and see. I predict more trouble for Usana soon.

Almost none of the business builders want to make money anyway, according to CFO Gil Fuller, so no one need worry. He says that only about 12% of [tag]Usana[/tag] associates want to actually make any money, and only about half of those actually try to make money.

Here are a few of the facts that we know about Usana Health Sciences distributors:

• 67% never make one penny in commissions. That’s according to Usana’s own documents, summarizing 2006 commissions paid out.
• 87% or more lose money in the business. Usana executives confirmed this statistic to the Wall Street Journal.
• 2.6% of Usana’s distributors receive 72% of the commissions paid out, again confirmed by Usana’s own documents

Yet when asked on yesterday’s conference call about the information being put out by Fraud Discovery Institute, the conversation focused on proving that distributors don’t mind the fact that they’re not making any money in Usana. (And the analysts apparently fell for it, by the way. No hard questions from them!)

Here’s how the conversation went:

Bill Leach -  Neuberger Berman: “The latest ravings from Mr. Minkow suggest that 87% of your distributors aren’t making any money. Maybe you can watch their latest thing on YouTube. But they had this couple that lost $5,000 supposedly. Could you just comment on that? He keeps referring to your documents and saying that, you know, as reported in your documents.. Is there any truth to that at all?”

Gil Fuller: “Well you know, I think the trouble with referring to his spinning of that information is it really is just, just spinning, uh in our view. Uh, uh. In, in results that we’ve… in surveys that we’ve done… uh, which are consistent, I think, with uh, DSA data, uh, most people get into direct selling. whether it’s us or anybody else. Tupperware, Avon or whatever. Most people get in there for, to benefit from the products. That’s certainly the case with us. So you only have about something on the order of 12% of people who, uh, get into this business with the intent of making money and only a small fraction of those, maybe half of those or something, do it with the intent of doing it more than part time.

So, uh, what he ignores in his machinations is the element of time with regards to who’s gonna make money. You know, it’s kind of stating the obvious, but the people who work at it are the ones that that in fact generate the income for themselves. Those that don’t or do it for product reasons, obviously don’t… So. uh..”

Dave Wentz: “Yeah, I mean, one of the things that a lot of associates focus on is just making enough money to pay for their products. Uh, which of course is not a possibility if they are buying their products retail from uh GNC or Wal-Mart or whatever. So uh, making money for them isn’t the goal, uh, just covering the cost of their products may be the goal. For others of course, it.s just customers that [inaudible] 75% join just focused on the nutritional benefits and 25 join focused on the business aspect. So, what percentage of uh, people who go for it are successful? I mean I don’t think we’re different from any other business whether it’s real estate, or stocks, or whatever. It’s people who work hard, stick with it, do it right, are successful.”

This argument that no one really wants to make money anyway fails on several fronts.

• 70,000 of the company’s North American reps are Preferred Customers, while 142,841 are Associates. Preferred Customer is the “I just want to get my vitamins at a discount” plan, while “Associate” is the “I want to build a business” option. If 88% of Usana reps were really just interested in purchasing vitamins, wouldn’t they sign up as Preferred Customers? Yet only 33% of the reps are Preferred Customers.
• With 142,841 .average distributors. and 70,000 .active. preferred customers and total direct sales of $246.5 million in North America for 2006, this averages to about $89 every four weeks, per associate or preferred customer. (Well it’s actually lower than that, but let’s give them the benefit of the doubt.) What does $89 every four weeks get an associate or preferred customer? About 84% of a 28 day supply of the HealthPak 100, one of the company’s best-selling products.
• The first problem with the above point, is that it proves that products are not being retailed.
• The second problem is that it proves that the distributors and preferred customers aren’t even buying enough vitamins for themselves to use them regularly. This debunks this whole “they want vitamins at a discount” theory.

When are people going to see this “business opportunity” for the [tag]fraud[/tag] it really is?

Did you think I meant today’s earnings conference call? Well that deception will be discussed later.

Today I am pointing out the lack of a PhD on the part of Denis Waitley. The Wall Street Journal broke the story today:

Usana Health Sciences Inc., a multilevel marketer of vitamins and mineral supplements, says it has been unable to confirm that one of its directors, Denis Waitley, received a doctoral degree that he had claimed.

Two weeks ago, Sam Antar wrote about Overstock.com CEO Patrick Byrne, and what happens to people who ask questions about the company, his management, and curious details about the company’s financial statements.

This week Sam has a follow-up, detailing a timeline surrounding events related to Patrick Byrne, Judd Bagley (Director of Social Media at Overstock), and a website run by Bagley called antisocialmedia.net.

The antisocialmedia.net (ASM) site was started to lash out at critics of Overstock. Byrne claimed no knowledge of who owned the site, then admitted he probably knew but had a “don’t ask don’t tell” policy about it, and then it was later revealed that Byrne did know Bagley ran the site.

Here’s a bit about ASM from the New York Post:

January 2, 2007 — Internet retailer Overstock.com’s war against its critics is taking an ugly new twist, as a Web site aided and supported by its management is leveling sharp charges against two Internet message board posters.

The site, AntiSocialMedia.net, launched bitter attacks last week on the message board critics, accusing them of participating to various degrees in a conspiracy to malign the anti-naked short selling movement that Overstock.com supports.

ASM’s targets, Floyd Schneider of Newton, N.J., and Darl Dumont, of L.A., are critical of Overstock.

ASM accused Dumont of “marginaliz[ing] those who’ve spoken out against the practice of strategic failure to deliver.” It accused Schneider of something sharply more serious: bashing stocks like Overstock “for compensation and in coordination with hedge funds shorting the stock (or worse).” It also said Schneider makes a “living out of lying.”

According to Sam:

Judd Bagley?..s very first post on antisocialmedia.net is an anonymous vicious attack on well known investigative reporter, blogger, and vocal Byrne critic, Gary Weiss entitled ?..Gary Weiss: The Strawman Cometh.

Sam then goes on to to outline what Patrick Byrne has said about his knowledge and involvement with ASM after the fact, versus what was posted on various sites at the time questions first came up about ASM. It appears Byrne was less than truthful.