Allegations of cheating in China are nothing new for Usana Health Sciences (NYSE: USNA). In 2007, the Fraud Discovery Institute accused Usana of doing business illegally in China. The country has very strict laws against multi-level marketing (MLM). It is strictly forbidden. Yet for years Usana has been getting around this rule by having distributors from mainland China do business through Hong Kong, where MLM is legal. When asked about the activity in Hong Kong versus China, the company has been deliberately vague.
In November 2012, Citron Research published a report on Usana’s activities in China. The report discussed law enforcement activity related to illegal MLM operations. Usana was criticized for not disclosing these material events (arrests and fines for distributors) in its SEC filings. Read More