Ex-con turned fraud fighter Barry Minkow has released a press release raising questions about Herbalife (NYSE: HLF). Calling the company a "financial crime in progress," he wrote about the "Top Ten Red Flags of Fraud at Herbalife."
Herbalife describes itself as "a global network marketing company that sells weight-management, nutrition, and personal care products intended to support a healthy lifestyle," but Minkow believes the company is a fraud.
Minkow writes about a large amount of insider selling combined with aggressive debt-financed share repurchases and indications that the company's business model is not sustainable. Minkow argues that the company has saturated many of its existing markets and that the stringent multi-level marketing laws in China will make expansion there difficult. In the report, he writes that "Herbalife's expansion has reached more than 80 percent of the world's population as the entire continent of Africa, for the most part, is not in the market for weight loss products," but the reality is that Africa is actually facing an extremely serious obesity epidemic. Whether Herbalife's premium-priced products are a viable solution there is a separate question.
In 2003, ex-con turned fraud buster Barry Minkow delivered a report to regulators suggesting that MX Factors LLC was engaging in a $39 million fraud. Later that year, MX Factors collapsed when the California Department of Corporations shut it down on the ground that it was operating an illegal Ponzi scheme -- paying off earlier investors with money acquired from later investors.
According (subscription required) to The Wall Street Journal, Mr. Minkow more recently helped law enforcement find mastermind Richard Harkliss, who had fled to Mexico. He was arrested in Arizona while visiting relatives.
The report Minkow prepared on MX Factors is not unlike the one he put together on Usana Health Sciences (NASDAQ: USNA), the multi-level marketing company he has accused of operating an illicit pyramid scheme.
Here's an interesting quote from a recent Forbes piece on Usana: "Why would anybody take this guy seriously?" Usana spokesman Joseph Poulos said Tuesday. "What is he an expert on? He isn't a forensic accountant. He just committed one very large crime once."
MX Factors is the latest in a string of more than $1 billion in fraud uncovered by Minkow, and that doesn't even include Usana Health Sciences (although you could make a strong case it should).
Rather than rebuking claims made in Minkow's report, Usana has chosen to go the ad hominem route -- focusing on Minkow's criminal past. One can only hope that they will have the fairness to also remind investors of Minkow's stellar track record as a fraud investigator. I somehow doubt they will.
In addition to numerous misrepresentations about its own company, the management at Usana Health Sciences (NASDAQ: USNA) has also taken to slandering its chief critic, con-man turned gumshoe Barry Minkow. Now Minkow is fighting back.
In a letter to Usana President David Wentz and CFO Gil Fuller also posted on his Fraud Discovery Institute's website, Minkow writes:
I have struggled over the last several weeks to remain silent in response to the multiple slanderous accusations made by your company in both your SEC filings and public statements. You and your paid supporters have made one false accusation after another, including your company's statement in the recent Forbes article: "We believe everything he [Barry Minkow] says to be false," Usana spokesman Joseph Poulos told Forbes.com. "He's a liar; he's a criminal -- he can't be trusted." Now Mr. Poulos said this on the record to a national magazine knowing it not to be true because even he believes that everything I have said is not a lie or he would have prevented (just to give one example but be assured these examples could be readily multiplied) Mr. Waitley from resigning from the board of directors as our reporting of the non existence of his Masters degree from the Naval Academy was dead on (again just to provide one example).
Of course, anyone following the Usana story knows that Mr. Poulos is, at best, completely out of touch with reality. I recently did a post comparing him to Baghdad Bob. Minkow also shows the first real evidence of accounting fraud at the Salt Lake City multilevel marketing company. Read the letter to see that.
Those of you who have been reading BloggingStocks regularly know that I'm a frequent critic of USANA Health Sciences Inc. (NASDAQ: USNA), the multi-level marketing company that has been under attack by critics led by ex-con turned fraud investigator Barry Minkow.
Now Forbes has joined the chorus of critics. With a story that has sent the stock down more than 7% today, Forbes raises questions about the viability and legality of Usana's business model. The author, Evelyn Rusli, reiterates New Zealand's National Business Review'sreport that the company is being investigated by the FBI.
Nothing much seems to have changed. Usana still has no idea why their auditor left but CFO Gil Fuller has become philosophical: "Life is too short to dwell too much on it."
In addition, the piece states that Usana may be in breach of the covenants on its credit facilities as a result of its extremely aggressive share buyback program.
Despite the fact that virtually all of Minkow's allegations have turned out to be true -- and the fact that Usana hasn't really rebuked a single one specifically -- the company keeps up the personal attacks and diversions: "We believe everything he says to be false," Usana spokesman Joseph Poulos told Forbes.com. "He's a liar; he's a criminal -- he can't be trusted."
Funny. I was just thinking the same thing about Usana.
Remember Baghdad Bob the Iraqi Information Minister who insisted the US was nowhere near Baghdad, even as the media blared images of the invasion?
I'm not sure what happened to Muhammad Saeed al-Sahhaf (AKA Baghdad Bob) after the fall of Saddam Hussein's regime, but a recent AP article gives me an idea: Maybe he's signed on with USANA Health Sciences (NASDAQ: USNA) as a company spokesman.
Yesterday, USANA's auditing firm resigned, but the company basically insisted that it did so for no reason. Until recently, USANA has said relatively little regarding private investigator Barry Minkow's allegations of wrongdoing at the company, but that's been changing lately. Spokesman Joseph Poulos (Salt Lake Sam?) has stood up to defend his employer. The results have been, well... He seems about as disconnected from reality as Baghdad Bob was. Take a look at some of his most memorable quotes from the past few days:
"Why would anybody take this guy seriously? What is he an expert on? He isn't a forensic accountant. He just committed one very large crime once."
After the close of the market yesterday, San Diego class-action lawyer Alexander M. Schack said he filed a lawsuit in California state court on behalf of hundreds of low-level distributors in the state. The suit is also seeking an injunction preventing the multi-level marketing company from recruiting in the state.
Needless to say, California is a huge market for USANA and, at the very least, the publicity could hurt the company's recruiting efforts there.
According to Robert FitzPatrick of Pyramid Scheme Alert, "The essence of the Usana scheme is the chain letter. Participants pay up to $1,000 to participate in the "binary compensation" plan. They buy the bogus "business centers" (pyramid positions). They then must continue to buy over $100 of goods (priced in some cases 20 times more than comparable products sold in retail stores) every month. Of each dollar that the participant pays in, 40% goes to the upline recruiters. Of that amount, 70% goes to the top 3% of the pyramid chain. Virtually no one retails the products at retail price. The prime consumers of Usana are just the "Associates" (pyramid participants.) Thus $28 of each hundred spent by the new recruits goes directly to schemers at the top of the pyramid. The bottom 97% are a continuously churning group. 2/3rds of them quit within a year. None makes a profit unless they can climb into the 3% by recruiting other victims."
USANA responded by saying that the suit was without merit and "relies on false claims made by a stock fraud felon who stands to profit from a decline in USANA's stock price."
If USANA wants to stop the bleeding, it will need to come up with a better defense. Barry Minkow, who the company's statement refers to, has earned a strong reputation for uncovering fraud and deception and was mentioned in Newsday a few days ago for his work in shutting down a $16 million ponzi scheme in New York.
Authorities have commended Minkow because he has a track record of providing facts that can be used to shut down financial crimes in progress. If USANA wants people to believe it is something other than that, it will need to provide a rebuttal to the allegations, something that is hasn't done so far.
In just the past few months, Usana Health Sciences (NASDAQ: USNA) has had more scandals surrounding biographical errors than any company or organization that I can think of. Take a look:
Denis Waitley, a director at the company, decided not to stand for re-election after investigator Barry Minkow uncovered that the PhD listed in his biography came from a long-defunct diploma mill. He also does not possess a Master's degree, although one was reported in numerous SEC filings.
Dr. Timothy Wood, Vice President of Research and Development at the company, claimed to have a PhD in biology, but it's actually in forestry, which seems less relevant at a company that makes nutritional supplements.
Myron Wentz, the company's founder and Chairman, renounced his U.S. citizenship to "move" to the tax haven of Lichtenstein.
And now, according to the Wall Street Journal, (subscription required), Dr. Ladd McNamara has left the company's medical advisory board after it was discovered that he no longer has a medical license. A Usana spokesman said that McNamara surrendered his license in Georgia in 2004 in response to allegations that he improperly prescribed medication to a family member. He also agreed to a lifetime ban from practicing medicine in Ohio.
The epic battle of ex-con turned fraud investigator Barry Minkow vs. Usana Health Sciences (NASDAQ: USNA) gets more one-sided by the day. In a YouTube video posted on March 27th, Minkow visited numerous vitamin stores to show that Usana products are hopelessly overpriced compared to the competition. Usana contacted the owner of one of the stores, Nutrimart, threatening to sue him if he didn't demand that Minkow remove the video from YouTube. They accused him of unfair competition.
But Brian Mohr didn't back down. In an email, he told BloggingStocks that he had not even heard of Usana before he was approached by Minkow with request for comparable products. However since then, he has "discovered several people I already knew had been 'taken' by this company. I have numerous people that have stories of their involvement. I really feel this is a big story waiting to become even bigger. Layer upon layer peels back only to reveal more craziness."
A piece in the Sunday New York Times tells the sad story of Richard Guthrie, a 92-year-old man who was defrauded of his life savings through an elaborate scheme perpetrated by criminals posing as telemarketers. These evil people take advantage of elders like Mr. Guthrie, who are particularly susceptible to fraud because they may be too trusting or lonely, and in dire financial straits. In Guthrie's case, he was living on the $800 per month he receives from Social Security. He passed the time since his wife passed away by entering sweepstakes contests, and the promoters frequently, and knowingly, sold his personal information to unscrupulous people.
Elder fraud strikes me as the most evil of white-collar crimes, and I did some looking around on the internet for resources for understanding and preventing the financial abuse of the elderly.
I have a copy of ex-con turned private investigator Barry Minkow's Frauds Gone Wild: Protecting Yourself from Elder Abuse. The DVD provides an entertaining look at the psychology of this crime, as well as offering an acronym that provides some suggestions for how to avoid being taken. While it strikes me as expensive at $17.99, it's a must for senior centers or church groups. Watch it with friends.
If you have elderly parents, or perhaps a neighbor, I strongly recommend reading through these materials, and discussing these issues with them. I had a nice talk about it with my grandmother today.
The battle between ex-con turned gumshoe Barry Minkow and multi-level marketing company USANA Health Sciences, Inc. (NASDAQ: USNA) continues. A couple weeks ago, I spoke with Minkow about his efforts to discredit the company, and the company's subsequent decision to file a lawsuit against him. Minkow carried on today, releasing a press release questioning the academic credentials of a Usana director/spokesman, and posting a video on YouTube where he visited a handful of retail vitamin stores to compare the prices of Usana's products to those of other brands. From the press release:
"According to Barry Minkow, independent licensed private investigators who specialize in examining resumes could not confirm that Mr. Waitley had earned a M.A. degree from the Naval Post Graduate School, in Monterey, California. Moreover, the Doctorate, or a Ph.D. in Human Behavior from La Jolla University listed in Mr. Waitley's resume, appears to have come from a now defunct and never-accredited "diploma mill," according to Minkow. Both alleged degrees are listed on official S.E.C. filings...
"In other developments, the second segment of the FDI response to Usana has been posted on YouTube.com. In this segment, Barry Minkow brings a film crew to four vitamin stores and purchases numerous vitamin products to compare prices with Usana's top selling, Usana Health Pak 100(TM), which wholesales for $118.00 for a one-month supply. "There is no objective, rational person who can watch this segment and conclude that, compared to comparable vitamin packs sold in retail stores, that the Usana product offers the consumer with any savings whatsoever - but is actually hopelessly overpriced when compared with multiple products from different companies."
When I spoke with Barry Minkow about the new developments, he referred to a "smoking gun." I am inclined to agree. So far, the Fraud Discovery Institute has uncovered that the company's CEO became a resident of Lichtenstein to avoid taxes and uncovered evidence that a key director falsified his educational credentials. Unless Usana can come up with compelling rebuttals, investors have to ask: What else is Usana hiding?
Barry Minkow, the ex-con mastermind of the Zzzz Best Carpet cleaning fraud, who reformed himself into a crusader against fraud, is back in the limelight. After receiving numerous accolades for helping federal agencies uncover more than $1 billion in frauds, he is out with his new set of three DVDs titled Frauds Gone Wild, which consists of Protecting Yourself from Investment Fraud, Protecting Yourself from Affinity Fraud, and Protecting Yourself from Elder Fraud. The production of the films was financed by a man who had tipped Barry off on a fraud in progress. While he did not end up getting his money back, he wanted to help other people from falling victim to fraud.
Several months ago, I received free review copies of the DVDs from Mr. Minkow's Fraud Discovery Institute. While they are entertaining and well put together, the $17.99 that Amazon is charging for each volume is far too expensive for them to be a good investment, in my opinion. Each DVD is about 30 minutes long, but much of the material is the same throughout. You will get the gist of protecting yourself from watching one of them. My advice: if you're interested in learning about fraud and how it works, just order Protecting Yourself from Affinity Fraud. It's the most psychologically interesting, and covers much of the material from the other two.
"USANA believes Mr. Minkow's statements are part of a coordinated public relations program financed by a paying client and from which Mr. Minkow will profit personally. According to reporting in the March 15, 2007 edition of The Wall Street Journal, Mr. Minkow , '...has bought 'put' options on USANA's shares in a bet the price will fall.' Mr. Minkow admits that he has been paid to conduct his 'investigation' against USANA. Further, he has engaged a public relations firm to propagate his false and misleading statements about USANA to the media."
Marketwatch columnist Chuck Jaffe has an excellent piece about the frequently fraudulent high yield investment programs (HYIP's) that litter the internet. Known for promising outrageous returns (10%+ per week in some cases) and given only vague details about how they earn their returns, these "investments" are most often Ponzi schemes.
I recently interviewd convicted felon Barry Minkow, who is now founder of the Fraud Discovery Institute, working tirelessly to protect investors from scams. In his new 3-part DVD series about protecting yourself from fraud (look for it on his website when it is avaialable) the DVD featured sections on investment fraud, elder fraud, and affinity fraud, and is both informative and entertaining. In talking about investment frauds (such as HYIP's), Minkow urged investors to think of it this way: Warren Buffett is considered arguably the greatest investor of all time, and he compounded money at a rate of about 23% per year.
Anytime someone offers you better returns, ask yourself: are they better than Warren Buffett?
Ex-con turned fraud fighter Barry Minkow has released a press release raising questions about Herbalife (NYSE: HLF). Calling the company a "financial crime in progress," he wrote about the "Top Ten Red Flags of Fraud at Herbalife."
Remember Baghdad Bob the Iraqi Information Minister who insisted the US was nowhere near Baghdad, even as the media blared images of the invasion?
Barry Minkow, the ex-con mastermind of the Zzzz Best Carpet cleaning fraud, who reformed himself into a crusader against fraud, is back in the limelight. After receiving numerous accolades for helping federal agencies uncover more than $1 billion in frauds, he is out with his new set of three DVDs titled 
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