The Motely Fool recently published a bit on Usana Health Sciences and the ongoing SEC investigation that was started based upon the investigation done by Barry Minkow and Fraud Discovery Institute.
I have a few comments on some of the assertions made in the article.
You’ll need to know something about MLM before we dig into USANA’s story. Here goes: MLM, in its simplest form, combines direct marketing and franchising. For USANA, associates or distributors buy from the parent company and are compensated not only for what they sell, but also for how many others they recruit to sell USANA’s products. (New associates pay an up-front fee.)
MLM isn’t illegal, but as far as the Federal Trade Commission is concerned, the model may resemble a classic pyramid scheme, where riches are promised to those who get others to pony up cash to a dummy organization.
I don’t know where they got the idea that MLM is like “franchising,” but it’s really not. I’m afraid that the use of the term “franchising” add some credibility to the “business opportunity” that it doesn’t deserve. They got it right when they mentioned a pyramid scheme, though!
So far, there’s no evidence that USANA is conducting a fraud. But Barry Minkow, a former fraudster turned corporate crime-buster, told Forbes recently that executives have concocted a complicated scheme whereby they’re cashing out in huge numbers and covering their dilutive tracks with massive stock buybacks funded with shareholder cash. USANA denied the charges and took issue with the Forbes account here.
What would you call all the completely objective situations involving falsified credentials and misrepresentations? Are those not fraud? How can they be “no evidence”?
Perhaps that’s true. But even if it is, USANA’s attempt at a Jedi mind trick with respect to both Minkow (“he’s a crook!”) and the alleged FBI probe (“nobody’s called, so it must not be happening”) smell funny.
I concur. Usana hasn’t really given any proof that any of the substantive allegations are false. Seems that the executives hope if they keep saying Barry is a felon, that will be enough to make their problems go away. I doubt it will work.
I’ve been following a lot of the information about Usana for several weeks now (posted by yourself and others) and I’ve come to believe that the execs of that company are playing a shell game. I just finished watching “Enron: The Smartest Guys in the Room” and I had a strange feeling that Usana is on the same destructive path. Just as with Enron the house of cards will some day fall…
Barry Minkow, the “whistleblower,” is taking all the heat but, unfortunately that’s what his role is to play in all this and, of course, they don’t like it so they will find what will hurt and hurl it at him.
But aside from Mr. Minkow, there are red flags popping up all over (the audit company left abruptly, for one, under odd circumstances) and sooner or later the whole thing will come to light. The information or numbers, depending on how you look at it, are not adding up…
Also, I have a hard time believing that Usana is anything but a pyramid scheme. I’ve tried over and over to convince myself otherwise (and others have tried as well – believe me!) but I see it as nothing else. They can call it whatever they like but pyramid scheme it is…
The bells at Usana just aren’t ringing true at all and one day people will finally hear that… So keep “frauding” on, Tracy, I enjoy reading the information you present to your readers.