Usana and Barry Minkow Update

Usana Vindicated
Company has Minkow & Anti-MLM Zealots on the Ropes
after Three Punch Combination

January 14th, 2008For those of you not familiar with the attack waged by ex-felon Barry Minkow on Usana, and most recently Herbalife, and indirectly against the entire MLM industry, please check my Rebuttal Reports at http://www.marketwaveinc.com/articles.asp.

Minkow's 86 page report that declared, among other things, that Usana was an illegal pyramid, caused the SEC to begin an "informal inquiry" about 10 months ago, and was also the catalyst to two shareholder law suits against the company. Forbes, and the New Zealand based National Business Review, also reported that the FBI was investigating Usana.

On January 3rd Usana announced that one of the shareholder lawsuits had been dismissed with prejudice (meaning the complaint can't be refiled). Usana filed a motion to dismiss, but before a judge could even rule on it the plaintiff agreed to not challenge the motion and drop the case. The basis of this suit was that Usana was an unsustainable illegal pyramid.

On Friday, January 11th, Usana issued a press release announcing that the SEC had closed their investigation and found no evidence of wrong-doing. No accounting irregularities, no disclosure issues, and no evidence of illegally operating a pyramid scheme - all in direct contradiction to claims made by Minkow and his team of anti-MLM zealots.

Within an article* published by the Wall Street Journal after the SEC announcement, it was further revealed that, according to their sources, there is currently no FBI investigation. Allegedly the FBI had, upon first receiving Minkow's anti-Usana materials, indicated they would inquire about them. According to the article, Minkow now admits that the FBI subsequently told him they were leaving the investigation of Usana to the SEC, and were not going to pursue it.

*Subscription required to read the full article.

Commentary:

Since everything Team Minkow claims is wrong and/or illegal about Usana could conceivably apply to all network marketing companies, I have always considered his attack not just on Usana, and more recently Herbalife, but the entire industry. Had any of his allegations gotten traction - such as, when most products are sold to distributors that makes the company an illegal pyramid - we might have had a major challenge ahead of us.

Usana's war is not over by any means, but this one SEC battle will most likely be the defining one. Virtually everything the remaining shareholder and "distributor" suits are accusing Usana of were surely part of what the SEC was looking at. Currently the judge in Usana's case against Minkow is mulling over Minkow's motion to dismiss, which may succeed. Not because the case had no merit, but because Usana is suing Minkow on stock manipulation issues rather than libel so the standard of proof is extremely high. But this SEC decision certainly can't help Minkow in his pursuit of a dismissal. And the "distributor" suit was a joke even before these latest developments. The two lead plaintiffs are an ex-Usana product customer, and a guy who is working with Minkow who openly admits he suffered only $500 in damages - and that's from refunds Usana refused to pay him on product he never returned!

Of course, the shorts, trolls, and general anti-Usana antagonists on Usana's Yahoo! stock board are already spinning their goofy, face saving theories (pay offs, incompetent or uncaring regulators, etc.). They're still not willing, or able, to accept the most obvious, logical reason for why the SEC could not find any evidence of Usana's MLM business model being illegal, or in any way wrong.

Because it's not.
Len Clements

MarketWave, Inc.