26 Jul

Usana’s Naked Short Selling Conspiracy Theory

Is there something in the water in Utah? Or have Usana Health Sciences executives been lunching with Patrick Byrne, CEO of Overstock.com?

It seems that Byrne’s naked short selling conspiracy theories have worn off on Usana. Usana executives haven’t been caught whispering about Sith Lords yet, but for all we know, it’s only a matter of time.

Byrne is convinced that Overstock’s dwindling stock price is completely unrelated to the fact that Overstock is a poorly run company that can’t turn a profit. No. The problem is naked short sellers of the stock.

And now Usana is blaming naked short sellers in cahoots with Barry Minkow of the Fraud Discovery Institute for its problems. None of these alleged naked short sellers have been identified, but why bother with silly little details such as that?

I finally got around to taking a look at Usana’s amended complaint in its lawsuit against Barry and FDI. What it lacks in substance, it makes up for in tales of conspiracies.

Initially, I thought I was reading a fake document… something prepared as a parody. I mean, who on earth considers Usana to be “one of America’s leading companies in the field of health and nutrition”??? The complaint also states:

USANA has achieved its pre-eminent position through its line of superior and trustworthy products, and its innovative network marketing program.

What pre-eminent position? And newsflash… “network marketing” (also known as multi-level marketing, pyramid scheme, and other terms) is not innovative. It’s an old system that stinks as much today as it did when it was started decades ago. Let the record also reflect that if the products Usana sells are so superior, people besides the company’s distributors would be buying the products in mass quantities. Guess what? They’re not.

The suit names some secret defendants:

The names of the Defendants listed as John Does 1-100 are presently unknown to USANA. USANA believes that the John Doe defendants are one or more clients, agents, or affiliates of Defendants Minkow and FDI, possibly institutional investors or hedge funds, that have conspired with Minkow and FDI to manipulate the market for USANA’s publicly-traded stock in order to gain financially through short sales as set forth in this Complaint.

The amended complaint explains short selling and naked short selling, in furtherance of the conspiracy theory. Where did all this stuff start in the Usana matter? When Barry voluntarily revealed (on the day he released the Usana report) that he had legally purchased some Usana puts. So yes, Barry could make some money on the stock if the price falls. And so begins the grand conspiracy.

Barry had a paying client in the matter. A client asked for an investigation of Usana, and offered to pay for the work. This is the typical way a fraud investigator makes a living – client wants investigation, client pays for investigation. No secret there. The fact that Barry may (or may not) have been paid to do an investigation doesn’t mean that the results of the investigation are invalid.

The amended complaint goes on to whine about some lab results on its products. Barry didn’t test the products. An independent laboratory did. And the results were received and interpreted in good faith. And at the end of the day, the investigation wasn’t about grape seed extract anyway.

Then there are the alleged false and misleading statements about Usana’s multi-level marketing business model. One is in regard to the company’s pricing of the products and whether or not an old price structure was reinstated or not. Again, this isn’t what the investigation was about. Then some complaining about our opinions on the business model, the failure rates of distributors, and the fact that MLMs are constantly looking for new blood as the distributors fail, quit and must be replaced by new recruits. Are they trying to say they don’t need constant recruiting to stay afloat?

And finally, it’s Barry’s fault that there is a distributor class action suit against Usana, in addition to several securities class action suits.

I’m not impressed by Usana’s amended complaint. Much ado about nothing, if you ask me. Lots of discussion of conspiracy theories, and nothing to really support those theories. Certainly the stock price drop has nothing to do with Usana’s executives falsifying their credentials, or any of a number of misrepresentations by the company.

More information on naked short selling and the Patrick Byrne saga can be found on blogs maintained by investigative journalist Gary Weiss and felon-turned-scam-buster Sam Antar.

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