Minkow Bites Back at USANA
Barry Minkow responded to the USANA's defamation lawsuit, and while the legal reply has not yet been filed, Minkow's response is posted on the Fraud Discovery Institute's website.
In summary, Minkow claims:
" A list of over 174,000 active participants in Usana Health Sciences, Inc.1 was forwarded to us on March 17th via email. This list documents once and for all, beyond any doubt, just how many distributors do not make money. "
This is a very important part of the FDI report. Recall, and this is common to all MLM schemes, USANA claimed that it could cut the cost of delivering its products by 75% with its multi-level marketing network of distributors. Other public MLM schemes make similar claims, in order to entice a prospective distributor.
The FDI report claims that this 75% savings claim is false, material to prospective distributors, and its falsity should be revealed in its public disclosure to the SEC.
If distributors are not purchasing the USANA opportunity for the savings, then, asks the FDI, are they purchasing it, primarily to resell the opportunity to other prospective distributors?
In support of their view that the 75% savings claim is false, the FDI report asks two questions about the 75% savings claim.
First, why are only 14% of USANA's customers are preferred customers? (Preferred customers buy directly from USANA.)
- Why wouldn't more individuals buy directly from USANA if there really was a 75% cost savings?
- Isn't it cheaper for USANA to service more preferred customers rather than paying commissions to other 86% of its customer/distributors?
Second, why are USANA's most popular products much more expensive than what you can purchase retail stores? FDI compared a number of USANA's products to comparable products and found that some of USANA's most popular products were significantly more expensive. The cross comparison of course suffers because USANA's product mix is proprietary.
FDI concludes that this 75% savings claim is false.
How is the FDI report playing out these days?
The SEC is conducting an informal investigation of USANA.
David J. Phillips, at 10Q Detective, writes 'After doing our own due diligence, the 10Q Detective walked away skeptical, to--the dearth of transparency in the vitamin marketer's regulatory filings raises serious concerns as to the legitimacy of USANA's business model and the MLM 'business' opportunity itself" Mr. Phillips reports no financial interest in USANA stock.
Finally, here is a great video of Barry Minkow discussing the FDI report. over at Jim Cramer's the www.street.com. (In a delightful irony, given USANA's focus on Minkow's purchase of puts on USANA, Henry Blodget at Slade covers Cramer's crazy talk about hedge funds spreading false rumours. Presumably, they don't do so with 500 page public reports to the SEC and FBI.)
