Usana Review: Is USANA a Scam?

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Joining a MLM company can be a precarious venture. MLM's can be publicly traded, endorsed by famous and credible individuals, and have an appearance of sustainability. The last thing you want to do is to join an MLM scam aka a pyramid scam. With the country now in a recession many high flying network marketing companies and traditional corporate entities are being exposed, for example, recently: Bernie Madoff, and billionaire R. Allen Stanford perpetrated two of the large financial frauds against the American people. Before becoming a victim, do your due diligence and ask questions. Below is an interesting court case of Ashok Kapur vs. USANA. Ashok believed USANA was a scam. So the courts answered the question: Is USANA a scam?

USANA is a multi-level marketing aka network marketing aka MLM company. A MLM company is a company whereby products or services are sold typically person-to-person, away from a fixed retail location. These products and services are marketed to customers by independent sales consultants and depending on the company, the salespeople may be called distributors, consultants or various other titles. Products are sold primarily through personal relationships hence the term network marketing.

For a possibly more understandable example: Network marketing today is synonymous with AMWAY, as it was one of the first companies to use this distribution model, so if you are familiar with AMWAY you have a rough idea of the USANA model of selling product.

Commissions are paid not only to the MLM Consultant that made the sale, but they are also paid to the person who referred that consultant to the Network Marketing company in the first place hence the term multi-level as described earlier.

The corporate headquarters of USANA is located in Salt Lake City Utah. However, fortunately for USANA, they have expanded into thirteen other markets including: Australia, the Netherlands, Hong Kong, Japan, Taiwan, Korea, Singapore, Mexico, Malaysia, Philippines, and New Zealand, Canada, the United Kingdom.

The company sells multiple products ranging from USANA foods to USANA "Essentials and Optimizers". The company focuses on nutritional and personal care products. Through the MLM distribution system the company sold $374 million in 2006. See below for USANA product pictures.

USANA was questioned in a court of law regarding their alleged fraudulent securities law violations. The case describes in detail the judgment, rulings and certain considerations all MLMers should be aware of.

ASHOK KAPUR, Plaintiff,
vs.
USANA HEALTH SCIENCES, INC., MYRON W. WENTZ, DAVID A. WENTZ, and GILBERT A. FULLER, Defendants.

July 23, 2008, Filed

Immediately following a damaging report by investigative entity, the Fraud Discovery Instiitute, a class suit was filed against USANA for violation of anti-fraud provisions of federal securities laws, specifically the act of hiding from investors the close resemblance between USANA and an illegal pyramid scheme, (2) misleading investors regarding the long-term sustainability of the company's sales growth and business model.

Issue: Whether USANA is guilty of violation of the anti-fraud provisions of Securities Law?

Ruling: No. There is no violation of the law. USANA did not have an obligation to disclose the corporation's purported resemblance to an unlawful pyramid scheme. As to the second allegation, the projected retail sales revenues were forward-looking statements protected under the safe harbor of 15 U.S.C.S. § 78u-5. The court further ruled that plaintiffs did not present compelling proof of any commission of fraud by USANA. Only loose causation was shown. As a plaintiff, it is incumbent to present evidence to prove its allegation. The court ruled it has not discharged this duty.

Lesson: For a company to be liable for fraud under the securities laws, it should be established that said corporation is subject to a duty to disclose the omitted facts. In other words, uncharged unlawful conduct is one fact that corporations have no duty to disclose. Second, for a misrepresentation to be punishable under federal securities law, the misrepresentation must be material. A statement is only material if a reasonable investor would consider it important in determining whether to buy or sell stock. Whether information is material also depends on other information already available to the market. Unless, the statement significantly altered the total mix of information available, it will not be considered material.

There was no perpetration of a USANA scam as determined by the court. However, there are still many questions open to interpretation. Nevertheless, in the eye's of the court, USANA 1 - Victim 0.

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