USANA Health Sciences (NASDAQ: USNA) just can't seem to wake up from its PR nightmare.

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.