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. Continue reading
Guest Post by USANA Watch Dog
USANA has found a way to possibly expand its multilevel marketing opportunity into every country in the world, including unauthorized regions such as mainland China.
An internal USANA document shows virtually no limit to the number of distributors who can sign up using the same home address as well as the same credit card:
- With project upgrade complete IT has been able to help this situation with two new enhancements.
- First, as of January 26th the online enrollment system will not accept any address as a home address if that address has already been used by more than 15 other active associates. Continue reading
In February, I wrote about China MediaExpress Holdings Inc. (NASDAQ:CCME) and several fraud allegations that had surfaced via researchers at Muddy Waters and Citron Research. After looking at the allegations and the support (or lack thereof), my conclusion was that there was something wrong at the company. I wrote that even if some of the allegations were false or exaggerated, there were just too many unanswered questions and too many red flags of fraud.
I was attacked here by supporters of CCME. No bit of logic or common sense could sway the fans. Their arguments did not hold water. The main arguments were that I hadn’t done any due diligence on CCME (I had only looked at the work of several others), that auditors from Deloitte Touche Tohmatsu had verified the numbers (At least someone out there knows how unreliable audits are when it comes to fraud, though.), that due diligence was performed by Global Hunter Securities, and that Hank Greenberg’s Starr Investments put many millions into CCME. Surely all of these things meant that the company and its reported revenues and profits were legitimate? Continue reading
UPDATE: In March 2011, CFO Jacky Lam of China Media Express and the auditors (Deloitte) resigned. Deloitte said they could no longer rely on the representations of management, and they suggested an investigation was in order. Ping Luo, the analyst from Global Hunter who gave CCME rave reviews resigned. Maurice Greenberg’s Starr Investments sued CCME for fraudulently inducing it to invest $13.5 million. The stock was delisted from the NASDAQ in May 2011.
Deloitte raised the following issues: questionable authenticity of bank statements, supicioius bank confirmation procedures, existence of advertisers/customers, undisclosed bank accounts and bank loans, financial filings with the State Administration of Industry and Commerce differing from information provided to auditors, questionable authenticity of tax filing documents, cash payments to employees, and double counting of buses.
Last month, I wrote a piece on China MediaExpress Holdings (NASDAQ: CCME) and the allegations of fraud by researchers at Citron Research and Muddy Waters. The story grew quickly with the reaction of the company and its supporters. China Media Express Holdings responded to the allegations with a letter posted on their website, but the letter failed to definitively address several of the issues. The supporters of CCME were rabid, attacking anyone who would question the company.
Citron and Muddy Waters made many accusations, but the most concerning items included: Continue reading