Saturday, August 02, 2008

Usana Settles Law Suit with Barry Minkow

Team Minkow Losing Streak Continues

August 1st, 2008
Last Monday morning (7/28), Usana announced they had reached a settlement in their lawsuit against Barry Minkow. USANA has agreed to withdraw its lawsuit and Minkow and his "Fraud Discovery Institute" have agreed to remove all references to Usana that they control, never to comment on Usana again in the future, nor will he ever trade in Usana's stock (long or short).

See the press release here:

The timing of Minkow's surrender was not that surprising considering his already discredited case against Usana, and to a lesser extend Herbalife, had taken another battering the past few days. To wit:

In their effort to eradicate naked pyramid schemes, China banned all forms of multilevel commission structures in 1998. Several legitimate direct sales companies were allowed back in, on a case-by-case basis, but with single level pay structures. China's Ministry of Commerce (similar to our FTC) just granted Herbalife five additional licenses to conduct direct-selling business in five more provinces, including Beijing.

See the press release here:

But this was just a tremor compared to the seismic rocking Team Minkow took last Thursday (7/24). Within days of Minkow's first anti-Usana report being published in mid-March, 2007, three class action law suits were filed on behalf of shareholders based specifically on Minkow's claim that Usana was an illegal pyramid scheme (the most prominent allegation of wrong doing among many). The suits were eventually consolidated into one, and that suit has just been dismissed with prejudice (meaning the plaintiff is barred from ever bringing an action again based on the same claim).

The US District Court judge ruled that the plaintiffs failed to assert any actionable securities laws claims against USANA. The ruling cited all of the major attack points presented by Minkow, and specifically addressed his "Fraud Discover Institute" as the source. Here are some, but not all, of the issues the court considered, and then summarily rejected:

⇒ Lack of demand for Usana Products
⇒ Inevitable Market Saturation
⇒ Misrepresentation of Usana's Long-Term Sustainability
⇒ Unlawful Pyramid Scheme

See the press release here:

Obviously, I have a lot to say about all this. Too much for a short Alert. In fact, my Commentary went to five pages.

Please see the whole Alert here:

Have a great weekend!

Len Clements
MarketWave, Inc.

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