USANA Health and Sciences (NASDAQ:USNA) fell about 15% today after a very negative "Heard on the Street" column was published in today's Wall Street Journal. For those unfamiliar with USANA, the company sells nutritional and personal care products. The company could be considered a 'multi-level marketing' company because of how it sells products (using "independent distributors" and "associates") and classifies its marketing system as a "network marketing system. In my opinion, "multi-level marketing" companies strongly resemble pyramid schemes due to their 1-2-4-8-etc. hierarchy, meaning one person sits at the top and receives the most commissions while, as you move down the pyramid, the commissions decrease.
USNA is a classic momentum stock. The company has hit new sales records each of the last 18 quarters and, subsequently, the stock price has soared. However, the story certainly has its haters. One such hater is Barry Minkow, a convicted stock fraudster who gave his bearish rationale throughout today's "Heard on the Street" column in The Wall Street Journal ($). The first warning sign, like I mentioned earlier, is that the company is seemingly structured as a "multi-level marketing" company. For example, 86% of the company's sales are to the company's "associates" who work under another associate/recruiter, who works under another associate/recruiter, and so on.
In addition, the company's ownership also seems fishy, according to Minkow. The company's chairman (who renounced his citizenship in the mid-90s) owns 45% of the shares under a company registered in the
According to the article, Minkow even sent a 500-page letter to the FBI and SEC about the company and questioning its operating legality, most likely focusing on the pyramid-scheme aspect.
In my opinion, even if this company is not a fraud, it certainly seems to be built on a house of cards with so many potential causes of a downfall. First, consumers could begin to choose the lower-cost premium brand (GNC) or a lower-brand multivitamin in order to save money. In addition, the company could no longer be able to recruit the tremendous amount of "associates" it has been able to over the last several years, forcing the company's sales growth to slow dramatically and cause dissatisfaction among the new "associates." The FBI or SEC might even end up finding some sort of evidence that the company is operating corruptly (such as under a pyramid scheme) after questioning.
I'm not saying the company is a fraud or that it is certainly operating under a pyramid scheme, but I would certainly be very cautious.
More USANA Health and Sciences news
Kevin Kelly: "Heard on the Street" knocks USANA
Zac Bissonnette: Oh snap! Barry Minkow fires back at Usana Health Sciences
Zac Bissonnette: Forbes slams Usana Health Sciences (USNA)
Zac Bissonnette: NZ National Business Review slams USANA Health Sciences (USNA)
Zac Bissonnette: USANA has a product, so it's not a pyramid scheme?
Zac Bissonnette: Is Baghdad Bob working for USANA Health Sciences?
PC Upgrades on Byte-Size Budgets -- Savings Experiment
Weird-Mart: Tales of the Bizarre from the Walmart Aisles


Reader Comments (Page 2 of 2)
4-05-2007 @ 8:05PM
ahem said...
The Usana information has stated for years the average income of distributors.Its up to the new associate what they want to do with the business.
Wholesale customers and business owners.. both are done together.
I think the compensation plan is being confused with the Amway type of structure.
I know many distributors who are making LOTS more money than their UP line..
And the Barry character. .did I read that he went to health stores and asked about similar products??
Derrr... not very scientific of you Barry..!!
The Usana formula is very hard to duplicate out of a health food store..
On of the reasons that they work so efficiently perhaps??
And as far as cost comparison goes.. I have had pharmacists analyize the dosages and they concluded that buying products to equal the formula would be VERY costly.
I think Barry's reak name is Earl
4-12-2007 @ 3:56AM
Dan said...
I'm not the expert, but are you serious? Doesn't every business basically have oppurtunity tagged to it? Be it Dealers, distributers, affiliates etc. Usana is a corporation as well with officers, employees etc. they get paid just like any other employee or officer. Liars, isn't the world of products a lie. You say Sugar pills, are you serious where is the disclosure their, acid based product that throws your body all out of wack. 400% mark up on furniture, Food that comes in box that can't really be descibed as food. The fed, this product may contain. What is owned in america trace it back you would be suprised, most all of you support it. Every body looking for a free lunch, where is the personal responsibility? are we serious. Lets all put a class action siut on them all cause it didn't work for us. Bob had a rock thrown at him so he is bad lets all conform and throw rocks too while frank the real culprit was the one who threw the first rock. Sure we all make mistakes some are just that the 1% or so of just mistakes but lets not make them more than what they are, sure vent , vent vent it all out as long as it is just venting. I bet if you sat down with Dr. Wentz and this other guy and had a good chat you might see the bigger picture. Sometimes all this infomation is just that too much info being spiraled around till the real subject is not being discussed. Hey if Usana made some mistakes great it's all part of growth, but most of it sounds like miss information. Yeh divide the amount of money made by all in a company including losses to get it going cause most don't make a profit for awhile might be surprised some will show the negative. then we can file a class action siut against the companies we work for cause the didn't tell us what the real facts where, that they are actually paying us too much cause of the millions of $ they were in debt to make it happen of to cover your check till it was profitable, that is the risk we take, and if you don't understand that wake up and look at your own figures in your life cause you are probably lieing to your self on how well you are doing, health wise, wealth wise and otherwise look at all the statistics avery small percentage even take that into consideration. And sure there is a lot of so called hate toward people that have money, but ones that do have invest alot in different ways in all of our lives so the ones that don't like to risk enjoy somewhat of a life of those who do cause all recieve the benefits, and we all pay dearly in taxes to get a very little return cause of all the waste. So I have went on hear. So nobody sell or share anything to more than one person cause it turns into a so called pyrimid whether you get paid or not somebody is getting paid. and yeh it is great to be on the look out abd this is all about freedom of speech. but if you can't pay the price or at least listen and be open, it is just venting be honest and say it as such cause most people think you know what you are talking about. cause we make it all up. so create something good. How do you want to be in relation to this? Why would someone pay so much for a car? mercedes, a rolls ? go ask them they are probably paying less then you are if you are buying a Yugo or close to it. It's about value. If it was your life which rope would you buy, walmart special, or custom specialized high strenth, It's only 4,000 feet you are going to fall and to return the rope i will have to say it won't be you. Nice comment both ways, but seriously the concept unsustainable what like cars , books etc. cause after the whole planet has been sold, i mean the whole planet. who will they sell too. We all fear that hey boss evryone has been sold paper cups are business is doomed, you should of told us, are we that niaeve . I wasn't told that if I walked into a wall at 30 mph it might cause damge, so i am doing a class action suit against evryone involved excep myself. awareness and attention with accountability, I could go on love you all I am just talking outloud, you know venting, cause i know you all aren't serious, if so take my words lightly till i take them more serious. may this messeage not send you into depression knowing that your company you work for lies to you as do most you buy from cause not full honest disclosure and we all lost our brains. just for fun enjoy
4-25-2007 @ 3:48AM
Solomon Quiambao said...
Amazing! People and their Ignorance is Baffling! Understand that Usana is out of the norm. It is very unorthodox way of income. But what is the norm? hmmm the norm is work 9 to 5, stuck in traffic for 1 to 2 hours, go to school for years pay back debt, and the cycle all over. pay for school debt work harder pay debt get taxed!!! like robert kiwasaki said! " stuck in the rat race " never making ends meet! call me brainwashed but the brainwashing is a compliment. why does 1% of the populace is earning 98% of our income! its not an accident! they know the secret. and they work for themselves! i worked for countless companies! Bally's 24 hour fitness Pure fitness! all take 60% and above of my revenue! I saw a third party credible book purchase anywhere called Comparitive Guide to all health products that my coworker had. Centrum I believe is only 3.6 absorbtion rate, One a Day 1.2% and amazingly so USANA 98.6% absorbtion! So what is on the label is what your actually assimilating or absorbing! Know your facts then judge! Im a personal trainer and and making pretty good money, Thanks to USANA I can retire with residual income! But I do not anticipate quiting USANA or recommending it! It worked for me and it can work for anyone who is willing to do there due diligence and start there own clientele! once a client always a client cause of all the good results there receiving! contact me at pnysolja@yahoo.com!
5-06-2007 @ 10:05PM
Michael DE said...
I'm trying to figure out how Dr. Wentz' citzenship is a material disclosure. If someone as inexpert as Minkow can find out Dr. Wentz is not a citizen of the US, do you think the IRS could figure it out? Especially since Dr. Wentz must report it on his tax statements, as must USANA. Same with SEC filings. The SEC has certainly known that Dr. Wrntz is not a US citizen, but as he is not someone who manages the company, it is immaterial.
Nearly every stock rating company marks USANA as a buy or strong buy. So much for Minkow.
But I see that the last post before mine was in mid-April, so this is probably a dead horse. So much for Minkow.
5-31-2007 @ 1:15AM
SanDee said...
Research should be done before writing something ever so incorrect. Ignorance is one of the major problems with publishing today. #3 has excellent comments.
5-31-2007 @ 6:44PM
Roger said...
For those who want to see a detailed and complete rebutall of Barry Minkow's hollow "expose" of Usana visit: http://www.ExposeHomeBusiness.com
The best report is by Len Clements, who is completely independent of Usana. It blasts gaping holes in Minkow's claims and erroneous logic.