A college-age friend of mine keeps a large stuffed elephant in his dorm room. When people ask him why he has it there, he replies "Ssssshhhhhh . . . we're not supposed to talk about that!" I was reminded of this friend when I listened to Usana Health Science's (NASDAQ: USNA) 1st quarter conference call. Here's some of what's happened with Usana in the past month:
- Ex-con turned private investigator Barry Minkow released a report suggesting that the company's business model was an unsustainable pyramid scheme.
- Minkow accused a prominent director and spokesman for the company of inflating his academic credentials. The company admitted the "errors" and the director decided not to stand for re-election. Minkow also suggested another senior executive at the company had inflated his resume.
- A slew of shareholder class-action lawsuits have been filed against the company.
- The company announced that the SEC had begun an informal investigation of the company.
Fast-forward to Wednesday's conference call. Every question asked seemed to have a bullish slant, and assumed that the company was innocent. Questions centered around whether the company has seen an impact on sales from Minkow's report, and whether the company saw this as an opportunity to buy back more shares. I spoke with Barry Minkow about the conference call and he said, "I don't believe one thing they say" and also pointed out that "There was not one tough question allowed to be asked during the conference call."
And my favorite part: the company described director Dennis Waitley's resignation as due to an "inadvertent error" which Mr. Waitley had tried to inform them of but they had missed the memo, apparently. Here's why this is funny: according to the Minkow's report on the matter, Mr. Waitley reported an M.A. degree from the Naval Post Graduate School and a PhD. from La Jolla University. They were unable to find a record of La Jolla University as an accredited institution and it is believed to have been a "diploma mill." And on the Naval Post Graduate School: "When contacted by our investigators, a representative of the school was unable to locate any record that the search subject graduated with the stated degree, and as such, it would appear that this assertion is untrue."
It's hard to understand how you would accidentally claim to have graduated with a degree you didn't graduate with from an institution that you didn't graduate from. It's also hard to understand how one would mistakenly claim to have a PhD. from an unaccredited diploma-mill that no longer exists. It just doesn't make any sense.
The company also focused on the put options that Barry Minkow has. I would have liked to have seen one of the analysts on the call ask: "Given Usana's management's record of dumping huge amounts of stock while saying great things about the company, isn't it hypocritical to go after the few thousand dollars worth of puts that Minkow holds?"
In all, this conference call was further confirmation of all the reasons that I don't like or trust Wall Street analysts. They didn't ask the tough questions, and they appear to come in with an extremely bullish mindset, which leads them to fall into traps associated with confirmation bias.
To read my earlier coverage of the Usana scandal, take a look at these posts:
Ex-con Barry Minkow responds to Usana lawsuit
Cramer on BloggingStocks: This bullish retail story looks like a good fit 
Top growth fund manager sours on Apple, U.S. tech
New Facebook share structure hints at IPO
