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Notice:
Pyramid Scheme Alert (PSA) provides current and historical news items that are of interest to our members and visitors. None of the reports or commentaries is intended to imply that any of the referenced companies have been charged or convicted as illegal pyramid schemes.
See Video in which Fraud Investigator, Barry Minkow, Exposes Usana
Key Points About Usana from the Fraud Discovery Institute Report
-- 70% of all Usana commissions go to just 3% (at the top) of the sales chain.
-- Usana fails the FTC-developed test for legitimacy of multi-level marketing companies, using retail-sales as the main criteria for legality
-- Usana has almost no retail customers. 14% of its revenue comes from "Preferred Customers" who cannot resell or recruit, but they buy at distributor cost, not retail pricing
-- No less than 85% of current Usana distributors are losing money and no less than 74% of distributors fail within the first year
-- The mean average payment to the bottom 99% of Usana salespeople was $5.66 a week, before product purchases, taxes and all other business expenses
-- Out of each 10,000 Usana recruits, 6,320 will not earn even one penny in commissions.
-- Some of Usana's main products are greatly overpriced compared to similar products available in stores.
--Usana's "binary" compensation plan requires each salesperson to recruit at least two others in order to receive commissions. This model would saturate the earth in just 32 cycles if continued. It therefore causes a massive loss rate among each year's new recruits in order to continue.
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Special Report Analyzes the Usana Business Model
USANA: A CASE OF CORPORATE IDENTITY THEFT
(Click on the Pyramid to Read the Full Report)
April, 2007
The March 20, 2007 edition of The Wall Street Journal reported that the United States Securities and Exchange Commission (SEC) has begun an informal inquiry into Usana Health Sciences (NASDQ: USNA). The inquiry was prompted by the release of a 500-page investigative report by Fraud Discovery Institute, co-founded by well known fraud investigator, Barry Minkow. The report offered evidence that Usana’s business model is untenable, that the company functions as a pyramid scheme and that Usana’s SEC filings contain omissions and misr epresentations. Numerous class action lawsuits have since been filed against Usana.
To address questions raised in the fraud report by the media, by stock analysts and by many consumer inquiries sent to Pyramid Scheme Alert, Robert FitzPatrick has prepared an in-depth examination of Usana's business model.
The report analyzes the business model and operation of Usana. It closely examines the Usana recruiting program, pricing, retail sales, profitability, growth, pyramid sales chain, market saturation, and possible collapse of the company.
The report concludes that Usana operates with a "false identity."
To the public and in reports to the SEC, Usana identifies itself as a “direct selling” business that sells “through” a network of “entrepreneurs.” It claims these entrepreneurs resell Usana products and earn profits from retailing. Usana characterizes the distributors as a “channel” that is able to sell Usana’s virtually unknown brand at prices that are extraordinarily higher than others in the same market. These distributors, Usana says, are able to compete effectively against internet outlets, Wal-Mart, grocery stores and health food stores because of their superior training and knowledge of the products. They do this, Usana claims, without need of national advertising. They can even make these sales without ever having to offer discounts, thereby providing very high and remarkably stable profit margins to Usana.
The special report prepared by Robert FitzPatrick concludes that none of this is true. In fact, the company does not sell to the general public. It sells primarily and overwhelmingly to its own distributors. Usana distributors are not better trained or educated than health food store clerks. In fact, for the most part, Usana distributors do not distribute at all. Rather, they recruit other distributors. In reality, there is no retail profit opportunity in Usana. The products are priced far too high; the brand is virtually unknown and the potential profit margin on retail sales is far too low. Retailing is not feasible for the distributors. The average Usana distributor also does not purchase enough products to make retail profits.
The report describes Usana's actual operation as a private network, a kind of chain letter. The company requires an upfront investment to buy "business centers" that serve as membership fees. Additional fees are required to participate in the form of monthly product orders. The value of the "business centers" is dependent on future recruiting of other members. Prices are fixed within the closed system. "Sales" are driven by the promise of income from recruiting or at least the promise of discounts based on recruitment. Profits are based on position on the pyramid chain. Nearly all the commissions go to a small group at the top.
Since the announcement of the SEC investigation, consumer chat rooms and stock analysts have raised questions, argued and debated:
-- whether Usana is an “endless chain” pyramid recruitment scheme;
-- how many distributors are actually recruited into Usana each year, how many drop out, what their losses are and whether Usana deceives consumers and shareholders about the recruitment program;
-- why Usana was not investigated by the FTC;
-- the remarkably high prices of Usana vitamins and whether there is any significant base of retail paying customers;
-- why Usana founder, Myron Wentz, abandoned his American citizenship and established legal residency in a Caribbean tax haven and then placed the largest ownership share of the company in a European tax haven.
Usana has attacked the motives and credibility of the co-founder of Fraud Discovery Institute, Barry Minkow and sued him for defamation.
To explain the widespread financial losses and extreme dropout rates among the distributors, which Fraud Discovery Institute uncovered, Usana claims that thousands of people join its sales force only to buy the products, not to earn a profit.
The business model analysis by Robert FitzPatrick concludes that Usana’s deception is larger than omissions in SEC filings, more harmful that foisting overpriced products, more far reaching than stock options for Usana insiders, more significant than tax avoidance by its top executive, and much more serious than fake resumes of its directors, conflicts of interests by its medical advisors and misrepresentations to its distributors – though all of this occurs. The deception is even grander in scale than operating a product-based pyramid scheme.
Usana’s real deception, the report says, should be properly classified as corporate identity theft.
Read the report.
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- Is Usana operating as a pyramid scheme?
- Can Usana distributors actually retail Usana products?
- Has Usana already reached market saturation in the USA?
- Why are Usana products priced so high?
- What percentage of Usana distributors ever earn a profit?
- And much more.
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