An article today on SanDiegoReader.com does an excellent job of highlighting what’s been happening with the Usana case. As if I’d ever let you forget, I will remind you that Usana Health Sciences is being investigated by the Securities and Exchange Commission for violation of securities laws.
Their investigation was initiated based upon a lengthy report authored by Barry Minkow and Fraud Discovery Institute. Contributors to the investigation included me, Robert FitzPatrick, Jon Taylor, and Doug Brooks, to name a few.
Here’s a summary of the case, with the help of the article:
- Usana uses multi-level marketing to sell vitamins, but the real deal is they’re selling distributorships via pyramid marketing.
- Companies like Usana make money by recruiting new salespeople who pay a fee to become a distributor and then often buy products in order to “qualify” for commissions on people they bring into the pyramid.
- Little actual retailing of products occurs.
- 60 percent of active Usana distributors do not earn commissions and 70 percent of commissions go to 3 percent of the salespeople.
- More than 45 percent of Usana’s stock is held on the Isle of Man tax haven by Myron Wentz, company founder, and is in turn controlled out of another tax/secrecy haven, Liechtenstein.
- The issuance of the report sparked stories in the Wall Street Journal and Forbes.com.
- The SEC started an “informal’ (for now) inquiry into Usana.
- Reporters confirmed an FBI investigation into Usana, but the company denies knowledge of it.
- Usana asked law enforcement to investigate Minkow, but they declined.
- Usana officials including the CFO, a board member, and members of the “Medical Advisory Board” falsified their credentials in SEC filings and other materials made public.
- Usana’s long-time auditors, Grant Thornton, resigned after a disagreement about the scope of review procedures on quarterly financial statements.
- Usana’s 2nd quarter SEC filings are delinquent (i.e. They filed financial statement that were unreviewed.)
- Morningstar reported: “We are still wary of Usana’s management team.”
- Usana accuses Barry Minkow of lying to profit from a drop in Usana’s stock price, but the truth is that he issued a fair report with evidence to back up the allegations, and any profit Barry might make on the stock won’t even come close to covering the cost of the investigation. And his stock investment was disclosed from the start. Barry did not violate any laws with this stock bet.
- Three shareholder suits are pending against Usana.
- One distributor class action suit is pending against Usana.