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
All good multi-level marketing companies have one thing in common: They fail to disclose enough information to allow consumers and regulators to determine if they are in the business of recruiting or selling products. They disclose just enough facts and figures to make it appear that they are being transparent. But they hide enough information that no one could ever determine definitively if they are running pyramid schemes.
MLMs cleverly avoid the pyramid scheme issue by making it impossible to determine the level of retail sales of products to consumers. The companies effectively use the technique of plausible deniability: They purposely do not track retail sales, so when the business model is challenged with the assertion that few retail sales occur (and therefore they are recruiting schemes), executives can claim that they know no such thing!
Usana Watchdog has released a report on Usana Health Sciences, challenging the company’s failure to reveal meaningful facts and figures that would allow consumers and law enforcement to determine whether the company is running an illegal pyramid scheme. Continue reading
In the Usanan Health Sciences (NASDAQ:USNA) most recent 10-Q filed with the SEC, the company makes reference to restated financial statements: Continue reading
If you were going to join a multi-level marketing company like Usana Health Sciences (NASDAQ:USNA), what would your goal be? Would you aspire to be one of their million dollar earners? That sounds awfully prestigious, doesn’t it?
Well check out this excerpt from a recent press release by the company, and then catch my comments at the end. Continue reading
This was written by TerminatedRamp, of Usana (NASDAQ:USNA) stock message board infamy:
Understanding USANA’s Pyramid Scheme is Key To Financial Freedom
If you want financial freedom, then understanding how USANA is a pyramid scheme can help you avoid losing thousands of dollars.
All MLM companies admit that in a pyramid scheme, distributors are paid commission for signing new distributors up. The commission would come from the $20-$40 fee that new distributor pays to become a distributor. USANA avoids this and claims they are a legitimate business opportunity and not a pyramid scheme. Ok, so that must mean USANA is not a pyramid, right? Wrong. Continue reading
Consequently, the evidence now indicates only that Defendants engaged in the lawful trading of securities. Because USANA did not meet its burden, the court strikes the second claim for relief under California’s anti-SLAPP statute.
A ruling yesterday in the Usana Health Sciences (NASDAQ:USNA) v. Barry Minkow & Fraud Discovery Institute case in United States Court for the District of Utah is a big blow to Usana.
The judge’s order essentially grants FDI’s anti-SLAPP motion and dismisses all but one of Usana’s claims under state law (the bulk of what Usana was claiming in their complaint).
But here’s the best part: Usana cannot pursue money damages under federal securities law (Rule 10B-5). They could seek “injunctive relief”… but there’s really nothing for Usana to ask for an injunction on anymore. Barry has no current positions in Usana stock, so there’s nothing to claim there. And the First Amendment protects free speech, so Usana really can’t shut Barry up… our laws allow him to criticize Usana if he wants. Theoretically, Usana could still pursue a claim of unlawful stock manipulation, but they really have no case in that regard. (As a friend of mine says: NOPE-SORRY!) Continue reading