USANA Health Sciences, Inc. (NYSE: USNA), or USANA, is a Utah-based multilevel marketing company that produces various nutritional and skin-care products. USANA products, most of which are manufactured at the company’s West Valley City, Utah facility, are sold in sixteen international markets via a network of independent distributors (referred to as "associates"). USANA is the 24th largest direct selling company in the world. The company has sponsored and provided products to several athletic organizations. In 2007, several of USANAs executives were discovered to have made false statements in their resumes.
Background and organization
USANA was founded by an immunologist and microbiologist Myron Wentz. USANA, based in West Valley City, Utah, sells its products through multilevel marketing: distributors recruit and profit from other distributors. The products are not available through retail channels, but instead can only be obtained through one of its independent distributors (referred to as "associates") or by direct order through the company. The company has approximately 222,000 associates and 68,000 "preferred customers" in its worldwide distribution network. In 2010, 90% of product sales was purchased by associates, and 10% by preferred customers. As of 2010, its products are marketed in the United States, Canada, Australia, New Zealand, United Kingdom, Netherlands, Japan, Hong Kong, Taiwan, South Korea, Singapore, Mexico, Malaysia, and the Philippines.
Beginning in 1993, Dallin A. Larsen served as USANA’s vice president of sales (and later as consultant to USANA’s president and special advisor to the board of directors) prior to founding the MLM beverage company Monavie in 2005.
From 2004 to 2006, USANA was named on Forbes “200 Best Small Companies” list. In 2007, USANA was not included on Forbes' 200 Best Small Companies” list, and an article in the magazine quoted industry and government experts who had raised questions about USANA’s business practices and products. USANA responded by issuing a press release denying that the company had breached a $40 million loan agreement with Bank of America.
During 2007, USANA faced repeated controversy after several of its executives were discovered to have made false statements regarding their qualifications. The executives included Denis Waitley, a member of the board of directors who had falsely claimed to hold a master's degree from the Naval Postgraduate School; sales associate Ladd McNamara, who quit the company's medical advisory board after it was discovered that his license to practice medicine had been revoked; the Vice President of Research and Development, Timothy Wood, who was found to have doctorate in forestry, as opposed to biology as he had claimed; and the Executive Vice President and Chief Financial Officer, Gilbert Fuller, who had continued to use the title of CPA, though his CPA license had expired 10 years before he joined USANA in 1996.
In August 2007, USANA announced that it had been notified by the Securities and Exchange Commission (SEC) that its shares were subject to delisting from the NASDAQ because the company had failed to have the financial information in its quarterly Form 10-Q reviewed by an independent auditor. USANA reported this was due to their public accountant resigning and not yet being replaced. In October 2007, USANA announced that NASDAQ had determined they were in compliance and their stock would continue to be listed.
On January 3, 2011, USANA completed the transfer of its common stock from the NASDAQ to the New York Stock Exchange.
On May 10, 2011, it was announced that 4 of USANA's executives (President and COO Fred W. Cooper, CFO Jeffrey A. Yates, EVP of Sales Mark H. Wilson, and VP of Finance Riley Timmer) had unexpectedly resigned their positions at the company to pursue an unspecified business opportunity.
Business model
USANA, a multilevel marketing company, sells its products primarily via non-employee distributors known as sales "associates" as well as via the Internet. Associates may be eligible to receive commissions based on their own product sales as well as through sales made by any new distributors they recruit (referred to in multilevel marketing parlance as a "downline"). USANA uses a binary infinite compensation plan which awards commissionable 'points' for sales volume. When the points reach a pre-determined number, the associate is paid. If the points do not reach the payment threshold, they accumulate towards the next week. USANA requires that associates must purchase a minimum of 100 volume of products (equivalent to approximately $110–$130) every four weeks in order to remain eligible to receive compensation. If this minimum requirement is not maintained, the distributor will lose the points that have accumulated but not yet been paid on. According to documentation from USANA corporate 87% of associates fail to make enough off of commissions to recover the cost of their qualifying purchases with 67% of all associates making no commission; 72.2% of the company's commissions are earned by the top 2.31% of associates.According to a 2011 article published by the Salt Lake City Tribune, USANA's FY09 income disclosure statement indicated that the average yearly income of the company's 165,710 associates, which includes those just starting out, was $617, while the "top-of-the-pyramid distributors earn an average of $857,865 annually".
USANA's 2010 income disclosure statement defines "associates" as those who are actively building a business, acting as wholesale buyers, or are new distributors. USANAs 2009 SEC 10-K filing draws a distinction between associates and preferred customers. Associates are defined as independent distributors of USANA products who also purchase USANA products for personal use. Preferred customers may purchase products, at wholesale prices, strictly for personal use and are not permitted to resell or to distribute. As of July 2011, USANA had 222,000 active Associates and 68,000 preferred customers.
USANA's associates are bound by distributor agreements, which forbid distributors from making "misleading income claims" to potential associates or from making health claims for the products. However, an investigative report aired by Radio-Canada in February 2009, which included hidden camera filming of recruitment and other sessions, found that one group of associates appeared to violate the company's policies. The program contrasted the information about potential revenues presented at meetings and in written materials with the Canadian legal requirements for multi-level marketing schemes to provide clear, frequent and complete information about the revenue of the typical participant. In addition, the same group of associates were filmed making recommendations for using USANA products to treat illnesses including leukemia.
In 2008, two Canadian USANA distributors were awarded $7 million in compensation for damages related to their wrongful dismissal from the company. USANA had terminated their positions in 2003 because USANA believed the distributor had violated the companies' policies and procedures.
New Zealand government statistician for the Commerce Commission, Dr. Murray H. Smith, who served as an expert witness in every pyramid scheme case brought by the Commission preceding 10 years, opined in 2008 that very few USANA distributors are likely to become wealthy, going as far as to state "you can make a very strong argument that this could be a pyramid scheme." When asked by the National Business Review to review Usana's business structure and compensation plan, it was Smith’s opinion, from a statistical not legal standpoint, that USANA demonstrated a number of characteristics commonly occurring in pyramid schemes including that most members recoup less than what they pay to participate; that those at the top of the structure are more likely to make more than those on the bottom of the structure; and that as the company grows it will become harder to recruit others. Dr. Smith also noted the company’s significant turnover in distributors making it necessary to continually recruit.
Sponsorships
USANA is a paid sponsor of various athletic organizations. In 2006, USANA signed a co-sponsorship agreement with the Sony Ericsson WTA tour.
USANA offers an Athlete Guarantee Program to select members of the Canadian Olympic team through a sponsorship agreement, which stipulates that should an athlete enrolled in the program test positive for a banned substance as a result of taking USANA products, USANA will compensate the athlete with up to two times his or her current annual earnings (up to $1 million CAD).
In 2003, USANA became the title sponsor of the USANA Amphitheater, an outdoor amphitheater based in West Valley City, Utah with a seating capacity of 20,000.
Lawsuit
On February 20, 2007, Barry Minkow, an executive of the Fraud Discovery Institute, distributed a 500-page report to officials at the U.S. Securities and Exchange Commission (SEC), the Federal Bureau of Investigation (FBI), and the Internal Revenue Service (IRS) accusing USANA of operating an illegal pyramid scheme. USANA countered by lodging suits against Minkow and his company claiming defamation and stock manipulation. The company denounced Minkow as a convicted felon and liar (Minkow had served a 7-year prison term starting in 1987 for stock fraud; he later became a senior pastor for the Community Bible Church in Mira Mesa and a "fraud-buster" who assisted federal and state authorities in various fraud investigations).
According to an article published in the San Diego Reader, USANA was subsequently the subject of investigations by the SEC and FBI. The SEC conducted a probe of USANA's business practices in March 2007 and found nothing incriminating, concluding its inquiry with no enforcement action recommended. The company's longtime auditing firm, Grant Thornton, resigned in July 2007 because it could not agree with USANA on procedures for an outside, independent investigation of the charges. Because it had no auditor, USANA was late with official government filings and was not in compliance with SEC and NASDAQ requirements.
On the day Minkow's report was released, USANA's shares had traded at $61.19 but by August the share price had tumbled to less than $35. Minkow, acknowledged that he was shorting USANA's shares, hoping to profit from a drop in the stock price. However, in reference to USANA's lawsuit, news columnist Herb Greenberg commented that the criticism of Minkow "is a bunch of malarkey; he has a right to publish his research, as long as people know his position [in the stock]." Minkow had revealed in the report that he was betting for the stock to go down. USANA dropped the defamation suit and in March 2008 U.S. District Judge Tena Campbell threw out four of the five claims brought by USANA against Minkow ruling that USANAs claims violated California’s anti-SLAPP law for suing Minkow for fair criticism. And that USANA did not show a reasonable probability of winning on those claims. The judge also cited two examples where USANA failed to refute Minkow's claims that their products were overpriced and of no better quality than other lower-priced brands. The remaining charge of stock manipulation was settled in July 2008 when USANA and Minkow reached an undisclosed settlement, which included the removal of all USANA-related materials from the Fraud Discovery Institute website, a related Chinese website, and from YouTube. Minkow also agreed to never trade in USANA's stock again. Separately from the settlement, the company paid $142,510 in attorney fees to Minkow and his institute under an order from federal Magistrate Samuel Alba. Court documents show that USANA never pursued others whom they suspected of being part of the alleged stock manipulation nor did they ask for an injunction, their only avenue of release in this case.
Source: Wikipedia, the free encyclopedia
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