Usana Health Sciences is throwing its latest temper tantrum at being exposed for the fraud it is. National Business Review reporter Helen Malmgren reported a few weeks ago on the Usana scam. Usana has replied with a letter that is little more than another “Barry Minkow lies” tale, with nothing of substance behind it.

Malmgren has summarily sliced and diced this ridiculous letter and it will be interesting to see how Usana does with this one. They haven’t done so well before. Please note that Malmgren is now reporting from an Federal Bureau of Investigation source that Usana is under investigation by the FBI.

The following letter was sent to the National Business Review by Daniel A Macuga, Jr, Vice President, Network Development and Public Relations, Usana Health Sciences.

We are writing this letter to express our concern with the article ‘Most people won’t get their money back‘, by Helen Malmgren, which appeared in the July 12, 2007 issue of National Business Review.

Unfortunately, this article contained several misrepresentations of the facts and outright false statements that deserve to be addressed.

It is important for you to know that our company’s management team is fully committed to assisting the National Business Review in getting the full and accurate story regarding USANA. Our company has recently been subjected to a number of baseless attacks from a convicted stock fraud felon who has admitted to having a financial interest in a decrease in our stock price. We are hopeful that you will take action to correct the record.

In particular, we would like to draw your attention to the following major points:

We are concerned with this article’s statement that our company is under investigation by the U.S. Federal Bureau of Investigation. Our company has no knowledge – much less confirmation – of any such investigation. What proof does your reporter have of such an investigation?

This article states that associates are required to buy hundreds of dollars of products every month. This is simply not true. There are no requirements that our associates buy any products whatsoever. USANA’s rules are clear on this issue, as demonstrated by the compensation plan that this article links to. Furthermore, Dr. Fred Cooper specifically informed Ms. Malmgren of the facts, which she left out of her article.

This article misrepresents how USANA and its associates view the opportunity to earn commissions. USANA’s research, which was shared with Ms. Malmgren, shows that over 75 per cent of the more than 128,000 associates participating in an online poll cited their interest in the company’s products as the primary reason they join.

Dr. Fred Cooper explained this data to Ms. Malmgren, who unfortunately mischaracterized his statements as a simplistic statement that USANA associates are “happy” to spend their money and not earn commissions. (Adding to the confusion, the article states that associates are in fact “happy” to spend $290 per month. As noted above, there are no requirements for associates to spend anything on product.)

Perhaps most troubling, Ms. Malmgren’s article falsely states that a USANA spokesperson “suggested” that the company’s July 17th corporate earnings announcement would confirm that sales were slated to continue to grow year after year.

While USANA’s guidance published prior to earnings clearly stated that the company expected sales to continue to grow, our spokesperson made no statements whatsoever suggesting or characterizing earnings. The only discussion of earnings was to give your reporter a “heads up” that earnings were scheduled for July 17th as a courtesy.

We are pleased that the National Business Review posted our email correcting the record on this issue, and that Ms. Malmgren confirmed via telephone that she did not have notes of any suggestion being made to her about earnings. However, we do believe that we have the right to expect a proper correction.

Ms. Malmgren’s article in several instances presents income claims allegedly made by USANA associates or other third parties as claims made by USANA. Our associates are independent business owners, who are governed by USANA’s strict compliance program.

If USANA becomes aware of any inappropriate claims made by its associates, it takes immediate disciplinary action, which may include termination of the associate’s privileges to sell USANA products.

Without any challenge, Ms. Malmgren quotes Barry Minkow as saying that he made no money from his puts and that he does not have a financial backer. Reporting by The Wall Street Journal on March 15, 2007, which is selectively cited by Ms. Malmgren, clearly contradicts this.

There are a great many other problems with Ms. Malmgren’s article – e.g., falsely describing Ladd McNamara as a company executive, falsely reporting that USANA has claimed financial setbacks, failing to point out highly relevant information provided by the company, etc.

We would be glad to go through these and other points with you, if that would be helpful.

We appreciate your willingness to address these issues, and are ready and willing to do whatever we can to help.

We are deeply committed to our fine business and to our associates in New Zealand, and are pleased that over 200,000 people worldwide receive the benefits of consuming our science-based health products.

Sincerely,

Daniel A. Macuga, Jr.
Vice President
Network Development & Public Relations
USANA Health Science

NBR Responds to Usana’s letter, point by point:

“What proof does your reporter have of such an [FBI] investigation?”

Helen Malmgren confirmed the existence of this investigation with an informed source in the FBI.

“This article states that associates are required to buy hundreds of dollars of products every month. This is simply not true. There are no requirements that our associates buy any products whatsoever.”

Our article states that, to qualify for commissions, distributors have to buy a minimum quota of Usana products every four weeks, and that quota in New Zealand costs $290. Please see Usana’s 2006 10K filing to the US Securities & Exchange Commission, which states that “qualifying purchases are the amount of product that associates must purchase each month, which they must either re-sell to consumers or personally use, to be qualified to earn commissions or bonuses under Usana’s compensation plan.”

Ms Malmgren discussed these qualifying purchases with Usana vice president Fred Cooper, who confirmed that in 2006 87% of Usana’s commission-earning distributors did not make enough money to recoup the cost of their monthly purchases.

“Usana’s research, which was shared with Ms Malmgren, shows that over 75 per cent of the more than 128,000 associates participating in an online poll cited their interest in the company’s products as the primary reason they join.”

Usana gave Ms Malmgren three contradictory accounts of this survey. Ms Malmgren asked repeatedly for information that would clear up these contradictions and put this survey into some kind of meaningful context. Her last request for this information was by email the day before the article ran, and Usana did not answer her.

If Usana would like to answer Ms Malmgren’s questions about the survey now, NBR would consider posting it on our website along with the July 13 story.

“Ms Malmgren’s article falsely states that a Usana spokesperson ‘suggested’ that the company’s July 17 corporate earnings announcement would confirm that sales were slated to continue to grow year after year … our spokesperson made no statements whatsoever suggesting or characterising earnings.”

In a phonecall on July 6 Usana spokesman Joseph Poulos told Ms Malmgren that “the most important point is that the company continues to grow sales year after year.”

He also later said, “the larger point is that sales continue to grow.” Mr Poulos then encouraged Ms Malmgren to publish the date when Usana would announce its quarterly earnings.

Ms Malmgren took this as a suggestion from Mr Poulos that the Usana quarterly earnings report would reflect an increase in sales and wrote that in her story.

“Ms Malmgren’s article in several instances presents income claims allegedly made by Usana associates or other third parties as claims made by Usana … If Usana becomes aware of any inappropriate claims made by its associates, it takes immediate disciplinary action.”

NBR’s article quotes two sources that make claims about income:

– The Enlightened Way to True Wealth, a Usana promotional CD by Robert Allen, a high-profile Usana distributor and promoter;

and

– a New Zealand-based website for a group of Usana distributors, available at www.teamxcell.co.nz/financial+freedom/index.php.

“Without any challenge, Ms Malmgren quotes Barry Minkow as saying that he made no money from his puts and that he does not have a financial backer. Reporting by the Wall Street Journal on March 15, 2007, which is selectively cited by Ms. Malmgren, clearly contradicts this.”

The information Barry Minkow gave Ms Malmgren does not contradict the March 15 Wall Street Journal article – it updates it. Ms Malmgren has confirmed Minkow’s statements through other sources.

[ For more on Barry Minkow, a former fraudster who has assisted the FBI on numerous fraud cases over the past five years, go to It takes a thief to catch a thief, NBR, 6 July 2007 ]

“There are a great many other problems with Ms Malmgren’s article –for example, falsely describing Ladd McNamara as a company executive, falsely reporting that Usana has claimed financial setbacks.”

Ladd McNamara was on Usana’s medical advisory board until he was exposed as having lost his medical license in two states. NBR does not claim that he was a Usana corporate executive and apologises if its story gave the impression that he was.

Regarding whether Usana has claimed financial setbacks, please see:

– Usana’s defamation lawsuit against Barry Minkow, first filing, page 12: “The damage to Usana is evidenced by a 13 per cent decrease in the price of its publicly traded stock on the day the report was released;”

and

The Salt Lake Tribune, “Usana scales back its projections for growth,” April 19, 2007, which states that Usana “dialed back growth projections for the second quarter and for the year, blaming negative publicity about the company and its sales model” and quotes Usana chief financial officer Gilbert Fuller as saying, “while we remain very optimistic about the future we felt it appropriate to adjust our estimates for 2007 slightly, partly due to distractions resulting from misinformation about the company appearing in the mass media.”

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Dear Securities and Exchange Commission, Does it look to you like Usana was hinting to Ms. Malmgren about what would be contained in their earnings release a week-and-a-half later? Is that permitted under Regulation FD?