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.

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.

Fraud.org also has a nice section on elder fraud and telemarketing fraud, as well as Five Tips for Protecting Elders from Telemarketing Fraud. The Department of Justice also has a piece on why seniors are so vulnerable to fraud, and how to prevent it.

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.

On Thursday, BloggingStocks writer Kevin Kelly wrote about former stock fraudster turned private investigator, Barry Minkow's scathing report on USANA Health Sciences, a multi-level marketing company. When the Wall Street Journal picked up Minkow's research, the stock tumbled 15% in one day. At 9:03 that night, USANA Health Sciences (NASDAQ: USNA) reported that it had filed a lawsuit against Barry Minkow and his Fraud Discovery Institute, accusing him of defamation. The company issued a statement that begins:

"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?