Monday, October 20, 2014

USANA May Have Made Half a Billion Dollars In Sales From Conducting Illegal Multi-Level Marketing In Mainland China

USANA May Have Received at Least $440 million From Illegal Sales in Mainland China Since 2007

It may be that by secretly recruiting hundreds of thousands of Chinese Nationals as USANA distributors, which violates China's direct selling laws and possibly the Foreign Corrupt Practices Act (FCPA), USANA may have received $440 million from illegal sales in mainland China since 2007. USANA is a Multi-Level Marketing (MLM) company that makes most of its revenue from the product purchased by their sales reps also known as distributors. Mainland China has banned MLM, but that has not stopped USANA from recruiting China's citizens. USANA has hidden this information from investors, auditors, and regulators.

USANA is allowed to conduct MLM business in Hong Kong, which has a population of about 7 million. USANA has also purchased a company called Babycare, which has a direct selling license in mainland China through Single-Level Marketing, which means there are no downlines or commissions paid to any upline members. Since 2009 USANA's revenue for Hong Kong began increasing at a very rapid pace, which outpaced any of their other markets. The number of distributors they reported each quarter was such that 1 in every 100 Hong Kong citizens would have to be a USANA distributor, which was absurd since the ratio of USANA distributors in the United States is about 1 in every 3600 people. USANA's sales in Hong Kong peeked to $48.5 million in the fourth quarter of 2012. Since then, there has been a sharp decline in Hong Kong Sales at the same time a sharp increase in Babycare sales. As of last quarter (Q2-2012) USANA made only $15.4 million from Hong Kong. This is a substantial decline in sales, yet USANA has simply brushed it off as an expected decline as members join Babycare in mainland China rather than USANA in Hong Kong.

What's the big secret you may ask? In order to circumvent foreign laws, USANA recruited Chinese Nationals into USANA and had them register using a fake address in Hong Kong ("Room 1906 Kwong Yat House" for example). This way all of the Chinese citizens appear to be residing in Hong Kong when in fact they lived in areas such as Beijing. They did not join to spend $1000 USD (¥ 6100 CNY) on vitamins because they simply wanted the product (otherwise they would have been Preferred Customers), but joined as distributors so they can participate in MLM, which China considers is a pyramid scheme. Many if not most of them joined with a "3-business center" plan, which means they were sold the idea that they can maximize their profits if they start with the ability to create a bigger downline. Again, all of this is outlawed in mainland China, but that didn't stop USANA from swindling about $440 million from China. But remember, according to USANA these Chinese distributors reside in Hong Kong using the same phoney address!

The evidence that Chinese Nationals signed up as USANA distributors in Hong Kong can be found within the genealogy reports from those distributors who are their upline. The following link was a genealogy report from an upper level USANA distributor who had thousands of Chinese Nationals in their downline. USANA has since blocked the link, but here it is for historical record.
http://www.usana.com/DlmXlsServlet.xls?savedReportId=32397555
I have retained a copy of this document however:  www.mlmpyramid.com/USANA_32397555.xls


The Appearance That Babycare Has Been Growing at a Rapid Rate During The Last Several Quarters May Be Nothing More Than The Manipulation of Number.


USANA has claimed Babycare is growing in mainland China. However, it may be nothing more than the transfer of sales from Hong Kong to Mainland China. Sales that were once attributed to USANA's Hong Kong market is now simply being reported in Babycare. USANA's auditor KPMG LLP should investigate the sales that were once reported as Hong Kong and now seem to be reported as Babycare. So the whole notion that USANA is “growing” its Babycare subsidiary may not be true.

On USANA's last quarter's conference call, Dave Wentz was asked where he projects Hong Kong's sales should stabilize (in light of the rapid decline in sales). Dave Wentz responded with the following (my emphasis in bold highlight):
"Well, Hong Kong's a fairly small market, population wise. And so we believe it will be -- I mean, if you were to compare it to other markets at the same population size, we expect it to be more successful than a number of them. But there will be a level that hits it right, that matches the market size and the number of leaders that we have there. But a lot of focus has moved from Hong Kong to China, as we all know, and that's where a much bigger opportunity is." - Seeking Alpha Transcript
It would seem to me that Dave is trying to justify Hong Kong's declining sales and distributor numbers. He should have simply told investors the truth that Hong Kong's numbers have been grossly overstated for the last several years because the sales were actually from mainland China instead of Hong Kong. Now what if we interpolate the sales from 2007 to the last quarter and consider anything above that line to be from mainland China? I choose 2007 because of evidence that shows Chinese Nationals being recruited into USANA since 2007 using a phoney address as seen in the genealogy report I referenced above.

USANA has been telling investors and stock analysts that Babycare has picked up business in China. However, this might not actually be true. I believe USANA is simply transferring the reported sales from one territory to another to make it appear as if business is growing in China. As you can see, Q1-2013 is the start at which Babycare sales started to sky rocket. This may actually simply be the transfer of reported sales from one market to another. Notice that Hong Kong decreases by almost the same amount Babycare China increases.
Many years ago USANA began recruiting Chinese Nationals from mainland China into their multilevel marketing compensation plan in Hong Kong. China's direct selling law forbids multilevel marketing from being conducted. So what USANA did is have those from China's mainland sign up using a phoney residential address in Hong Kong.

It's one thing if a few rogue USANA associates were breaking the law by signing up people from mainland China. It's another thing for USANA to knowingly circumvent China's laws and have them all share the same phoney address in Hong Kong when they sign up. This may be a violation of the Foreign Corrupt Practices Act. The extent of this violation isn't about a couple dollars from a few bad associates. In fact, it may be closer to $440 Million over the last 6 years that actually is the direct result of Chinese Nationals in mainland China who were illegally participating and conducting a multilevel marketing scheme within their country.

USANA has in the past stated that an undisclosed amount of people from mainland China are purchasing product from Hong Kong for their own personal use and not building a USANA business. Then over the last year, USANA has stated that they have a new policy that restricts people from purchasing USANA product from outside their own market. So those from mainland China are not suppose to purchase USANA product from Hong Kong anymore. USANA has also stated that they are shifting their focus from Hong Kong to Babycare in China. They also admitted that some of those who were signed up in Hong Kong will now be signed up in Babycare in China.


Why Did So Many of USANA's Hong Kong Full-Time Leaders Vanish?

USANA distributors who are able to obtain at least 10,000 sales volume FROM their downline (5000 points on their left leg and 5000 on their right leg) each week for 4 consecutive weeks are given titles such as Gold Director, Ruby Director, Emerald Director, Diamond Director, and Star-Diamond Director. USANA labels this class of distributors as “FULL-TIME DISTRIBUTORS”. Anyone beneath this ranking USANA classifies as only “PART-TIME DISTRIBUTORS”.

Reading USANA's recruiting material one may believe there are a lot of distributors with these high rankings. Those that reach this level can be making $50,000 in commission to over $1 million in commission per year. USANA has had over 2,000,000 distributors since they began in 1992. Over the last several years I have collected data of USANA distributor leadership rankings. As of June 2014 there are only about 3141 USANA distributors in the world that are a rank of Gold Director or higher (full-time), which is an unknown fact that is not disclosed to investors or even new distributors before or after they sign up. Interestingly, over the last two year 531 FULL-TIME USANA distributors have dropped out or have been terminated. Remember, these are distributors who are highly ranked, collecting thousands if not millions in commissions from USANA (approximately $38 million each year according to 2006 US Associate Earnings Documents).
The bigger eye opener is that out of the 531 Full-Time distributors that have left, 378 of them are from Hong Kong alone! 12 Diamond, 7 Emerald, 59 Ruby, and 300 Gold Directors have been removed from Hong Kong and possibly transferred to Babycare. If these members were making the kind of commissions their USANA rank suggests, and they were kicked out of USANA and turned into Babycare Distributors, what incentive would keep them as Babycare distributors if they are all of the sudden going to be collecting no commission at all? Remember, Babycare distributors cannot make a commission from other participants purchases because they cannot have a downline. Yet, Babycare sales and associates have been skyrocketing along with the fact the percent of distributor incentives to net sales did not dramatically change from the loss of all these high ranking USANA distributors that USANA would no longer supposedly be paying commissions to.


Where Are The Regulators?
So what's going on here? I believe USANA auditors need to investigate this issue and get to the bottom of it. I believe the Federal Trade Commission (FTC) needs to also open an investigation into the “PAYMENT FOR REFERRAL” plan USANA has implemented world wide which pays a referral commission to anyone who recruits Chinese Nationals into Babycare and receives commissions from their purchases, even though Babycare distributors are forbidden to participate in MLM. I also believe the SEC needs to open an investigation into USANA's possible violation of the Foreign Corrupt Practices Act by circumventing China's laws by having thousands their citizens sign up using a phoney address to participate in USANA's Multilevel Marketing scheme which may be responsible for over $440 million dollars in funds from the citizens in mainland China.

Wednesday, October 1, 2014

A Lawsuit Filed in July by USANA Claims Sales Were Dramatically and Negatively Impacted - USANA Versus Belynda Lee


In a lawsuit filed on July 25, 2014 USANA seeks at least $3 million in damages from a former employee that USANA believes "has dramatically and negatively impacted USANA’s sales". Because of the amount and the significance of the quoted statement I believe USANA had an obligation to disclose the court case and negative sales impact to their shareholders. I cannot find any public mention of this issue by USANA to its shareholders.  

USANA Health Sciences V. Lee was filed in the Utah District Court. I will briefly discuss the court issue and pull quotes from the court document with my emphasis added in bold as well as the occasional link on certain key words.

Belynda Lee was hired by USANA in 2005 as Asian Market Development Manager. In March 2011 she was promoted to Vice President over its Canadian and North American Asian Market. On January 23, 2014 she submitted a letter of resignation to USANA, which ended on February 6, 2014. USANA and Belynda agreed to a separation agreement. This agreement consisted of a non-solicitation agreement as well as a non-compete agreement.

20. In exchange for Ms. Lee's non-solicitation, non-competition, and other promises, USANA agreed to pay Ms. Lee $53,045.01 within seven days of her resignation date.


USANA also extended the life of her Stock-Settled Stock Appreciation Rights.

21. In addition, USANA agreed to extend the life of 5000 of Ms. Lee’s Stock-Settled Stock Appreciation Rights (“SSAR’s”), awarded on July 21, 2008, until October 21, 2014. On February 6, 2014, Ms. Lee exercised these rights, sold the underlying shares, and received proceeds of $209,700.

22. USANA further agreed to extend the life of the equivalent of 6000 of Ms. Lee’s SSAR’s, awarded on July 21, 2011, until May 6, 2014. On February 10, 2014, Ms. Lee exercised these rights, sold the underlying shares, and received proceeds of $227,040.

23. Finally, USANA agreed that an additional 6,000 SSAR’s would continue to vest on Ms. Lee’s behalf, would become available to exercise on July 27, 2014, and would not expire until October 27, 2014.

24. The extension of Ms. Lee’s SSAR’s was made “[c]onditional upon [Ms. Lee] complying with the non-solicitation and non-competition restrictions” of the Separation Agreement.

So now the interesting part begins. According to the court documents, USANA agreed to a "limited waiver" which would allow Belynda to accept a position a Nerium Internation without violating her non-compete restriction. However, she violated that agreement.

27. In particular, Ms. Lee, together with her son and Aaron Dinh, directly or indirectly recruited members of USANA to leave USANA and join Nerium, for which Ms. Lee had been named Regional Vice President of Sales and General Manager of Canada.

28. Ms. Lee’s recruiting strategy was to contact USANA distributors, customers, and potential distributors and customers, together with or through her son and Aaron Dinh, to explain to them the purported problems with USANA, and to convince them that Nerium would be a better fit.

29. As a result of Ms. Lee’s efforts, several key USANA distributors and customers left USANA and joined Nerium, including Brenton Haag, Cathy Ngo, Aaron Dinh, May Anilhongse, Maurizio Flores, Coach Mike, and Christy Grisom.

30. Two of the distributors (Dinh and Ngo) were two-star Diamond Directors for USANA, which is a very significant distributor position within USANA. Their departure has dramatically and negatively impacted USANA’s sales, as they were highly recognized distributors with large, successful sales organizations. In addition, their departure has created negative publicity for USANA.

USANA admits in the court document that the departure of these high level associates negatively impacts their sales in a "dramatic" way. The wording of this implies a material significance that may have been required to mention in their second quarter 2014 SEC financial statement. The publishing date of that Q2 SEC filing was August 5, 2014 which should have been plenty of time to add a line item that mentioned this court case and the dramatic impact it had on their sales.

USANA goes on to make makes several "claims" and asks for an amount in damages. I will skip over those details and simply quote from the last couple pages.
WHEREFORE, USANA prays for judgment in his favor as follows:

1. On its first claim for relief, for a monetary judgment against Ms. Lee in an amount to be determined at trial, but not less than $1,000,000;

2. On its second claim for relief, for a monetary judgment against Ms. Lee in an amount to be determined at trial, but not less than $1,000,000;

3. On its third claim for relief, for a monetary judgment against Ms. Lee in an amount to be determined at trial, but not less than $1,000,000;

4. On its first, second, and third claims for relief, in the alternative, for a temporary restraining order, preliminary injunction, or permanent injunction, prohibiting Ms. Lee from continuing to act in a manner contrary to law;

5. On its fourth claim for relief, a declaratory judgment declaring that: (i) the Separation Agreement is an enforceable contract; (ii) USANA performed its obligations under the Separation Agreement; (iii) Ms. Lee materially breached the Separation Agreement by actively recruiting USANA distributors and customers to leave USANA; and that (iv) as a result of Ms. Lee’s breach, USANA is no longer obligated to provide the stock options (SSAR’s) it promised to provide, and that it can recoup the value of the SSAR’s Ms. Lee has already exercised;

6. For pre- and post-judgment interest on all sums due at the rate provided by law;

7. For an award of reasonable attorney’s fees and costs; and

8. For such other and further relief as the Court may deem equitable, appropriate and just under the circumstances.

DATED this 25th day of July, 2014.

USANA is seeking at least $3 million in damages. I believe this $3,000,000 could be considered materially significant when compared it to USANA's net revenues for Q2-2014 of $29 million before taxes.

Tuesday, July 29, 2014

USANA Second Quarter 2014 Earnings - Questions USANA Should Answer To Investors and Their Associates

USANA Health Sciences released their 2014 second quarter financial results. I would like to point out a few observations.

- USANA claims to now restrict associates purchases to within the country they reside. I believe this is in light of the fact they have had thousands possibly hundreds of thousands of USANA associates counted in their Hong Kong market that actually live in mainland China. This circumvents China's ban on multilevel marketing. USANA allowed all of these members to sign up in USANA's MLM using the SAME Hong Kong address (even though they actually lived in the mainland). Since USANA instructed these members to use a phoney address from Hong Kong, USANA knew this was wrong and violated foreign laws. Only a rat would construct such a circumvention.

I would love for a stock analyst to ask during the conference call "How many USANA associates switched to become Babycare associates?"


- USANA's Greater China sales declined year over year by $3.3 million. However, their active associates increased by 22,000 (102,000 to 125,000). This does not jive with historical patterns since there is a very direct correlation between the sales figure and the number of associates. So how is it that there is a 21% increase in the number of active associates yet a 4% decline in sales in the Greater China region? I have two theories!

Theory 1) 
Hong Kong USANA associates have decreased while mainland China Babycare associates have increased and I believe a USANA associate spends a lot more money upfront to activate their business center(s). USANA associates participating in the MLM pyramid scheme have incentives to purchase excess product (Professional Starter Kit costs $1250) in order to partake in many gimmicks that they are led to believe will help their chances of succeeding (Platinum Pace Setter, Matching Bonus, Contests, etc...). This is all based on the fact that upline associates will get commissions from their downline's spending spree.

Babycare associates do not have downlines and do not collect any commission from the personal product purchases made by fellow Babycare associates. So there is no incentive to spend a lot of product that they aren't going to sell anyway.

Theory 2)
Assuming USANA is making all Hong Kong associates who actually live in mainland China switch over to Babycare, USANA may have actually counted the same individual twice! Once for Hong Kong and once for Babycare.

I would love for a stock analyst to ask during the conference call "Did you switch Hong Kong associates over to Babycare associates and did you 'accidentally' count the same person twice? I ask this because it doesn't make sense that you have a 21% increase in active associates yet experience a 4% decline in sales."

And for the sake of the world, disclose the number of Babycare associates! The sales from that market represents more than 10% of overall sales. Therefore you should be required to disclose the number of associates you have in that market.

Lastly, I would like USANA to disclose a couple very simple numbers:
1. Number of active Babycare associates
2. Amount of commission paid to Babycare associates
3. Percentage of product purchased by Babycare associates that was retailed to the general public


Friday, June 13, 2014

USANA's 2 Star Diamond Director Aaron Dinh Quits USANA and Joins Nerium International

USANA Million Dollar Club Member
USANA's 2-star diamond director Aaron Dinh quits and joins Nerium International instead, another multilevel marketing pyramid scheme. Aaron was also a member of USANA's prestigious million dollar club. Why would someone at the top of the distributor hierarchy need to quit and start over with a similar scheme? I've sent Aaron a message asking for his comment and have not received any reply.

Thought this was note worthy since USANA would like people to believe in residual income. Well, when your downline drops out, you have no more income.

October 22, 2012: Aaron Dinh's Lamborghini

Saturday, May 31, 2014

Why USANA Products Are So Expensive - USANA's Own Words


A new USANA document written for their customer service employees shows them how to explain to customers why the products are so expensive. Why bother contacting USANA for the answer when yours truly can give you the document they provided for their customer service?

http://www.usana.com/UPLOADS/usana/2014/115/115-1_KAA.html

Product Pricing (Why the Products Are So Expensive)
Occasionally, we receive questions as to why our products are so expensive. You can use the following in response to this question:

Before pricing our products, we do our research to ensure that we not only supply the finest quality products, but at the best price possible. There are many factors that go into pricing: research, formulations, raw materials, costs associated with batch size, manufacturing, packaging, transportation, commissions, regulations, inflation, taxes based on the market, etc. All of these add up to the cost of doing business and impact the price USANA is able to offer on a product.
Posted: 25-Apr-2014


Lets break this down so we can see exactly why the products are "so expensive" as USANA puts it.

- Research and Formulations would be categorized under "Research & Development" and represents a measly 0.7% of the price of the product.

- Raw Materials, Costs associated with batch size, manufacturing, packaging, and transportation would be categorized under "Cost of Sales" and represents 18.5% of the price of the product.

- Commissions are categorized as "Associate Incentives" (which also includes bonuses, and certain awards and prizes) represents 43.2% of the price of the product - the biggest reason why the products are overpriced. It is also worth mentioning that two thirds of all USANA associates have never collected a single commission. Most of the commission is paid to the top 1% of associates. Last but not least, 99% of USANA associates do not make a profit. This category is the heart of the pyramid scheme.

- Regulations and Inflation. well I'm not sure where these fits in with the cost. However, even USANA's 10K SEC filings state this about inflation: "We do not believe that inflation has had a material impact on our historical operations or profitability." So why does USANA want their customers to now believe otherwise?

Interestingly enough, nothing about voluntarily manufacturing to "pharmaceutical good manufacturing practices" even made the list of excuses, although that would be considered part of Cost of Sales anyway.


So lets look at the price of the USANA Healthpak100 which can be purchased through auto-order (formally known as autoship) for $105.75

Healthpak100 Auto-Order price: $105.75
Cost of Sales: $19.61
Associate Incentives (commissions): $45.73
Selling, General, & Administrative (SG&A): $25.84 (Includes Research & Development of $0.74)
USANA Earnings: $14.56

How do USANA customers feel about this? Only 74 cents toward research and development! Now lets remove the commissions from the price of the Healthpak100. Instead of $105.75 for the Healthpak100, the product is now only $60.02 (We'll call it $59.95 for marketing purposes). Wouldn't you rather pay $59.95 for the product as a distributor (or customer) and be able to mark up the price yourself if you choose to retail the product? Remember, 66% of USANA associates never make a commission and 99% of associates never make a profit. So then what good does it do to overcharge 99.9% of USANA customers for an incentive they never benefit from? It only benefits the top 1% of distributors who are out primarily selling the "get rich scam" rather than selling the product...

USANAWatchDog answer to why USANA products are so expensive: 
To fund the pyramid scheme.

Sunday, May 25, 2014

USANA Training Material Teaches Its Distributors Not To Defend Their Position Against Negative Information

USANA provides their distributors with the following training material explaining how to deal with negative information about USANA. Here is a quick USANA review of an important piece of training material.

HOW TO DEAL WITH NEGATIVE MATERIAL ONLINE

Here's a few quotes from USANA:
- If it is negative, you need to ignore it
- Do not defend your position
- Do not view it again
- Do not leave a comment
- Do not rate positive OR negative
- Do not link to it
- DO NOT TALK ABOUT IT
- USANA is working to fix the problem
- Ignore negative information
- If approached, encourage others not to talk about it
- Report negative or false information to your market office
- DO NOT VIEW NEGATIVE MATERIAL AGAIN
- DO NOT COMMENT, RATE, VOTE OR LEAVE MESSAGES ON NEGATIVE POST
- DO NOT TALK ABOUT IT UNLESS IT IS BROUGHT UP TO YOU
Do not defend your position? This is because USANA cannot defend their position. I think this is important for people who are considering joining the distributorship to see USANA's training material before they waste thousands of dollars on a pyramid scheme that can't defend their position.

Wednesday, May 7, 2014

Former Herbalife Distributor Testimonials Represent The Bottom 99% of Distributors in All MLM Opportunities Including USANA

I strongly urge anyone considering to join USANA or any other multi-level marketing (MLM) company with intentions of making money watch the very compelling testimonials from Herbalife distributors who have lost thousands of dollars trying to achieve their dream. All MLM companies operate on the same principles and all have failure rates close to 99% of participants. The stories you will hear about in this video have been issues I have covered on this blog for many years.

http://www.factsaboutherbalife.com/former-herbalife-distributors-in-their-own-words/


I welcome your stories on this blog as well. If you feel you have been swindled, please explain why and how much money you have lost in the endeavor. Explain whether you returned product for a refund and if not, why. If you disagree with this testimonial or the notion that MLMs like USANA are pyramid schemes, explain why.

Tuesday, April 29, 2014

USANA Earnings Release for Q1 2014 - Analysts Must Demand USANA Disclose Number of Active Babycare Distributors in China.

USANA Health Sciences releases their first quarter 2014 earnings after the markets close today. I beleive it will be as usual, revenues up and active associate numbers up in select areas (I predict they will recruit 400,000 new associates this year alone). What USANA has refused to do for several years now is disclose the number of Babycare distributors. Babycare is a company USANA purchased that already had a direct selling license in mainland China. Multilevel Marketing (MLM) is banned in China so Babycare uses a single-level structure and no recruiting into downlines.

For several years USANA had allowed Chinese Nationals to be recruited into USANA distributor downlines in markets outside mainland China, such as Hong Kong. These illegally recruited distributors were given a phoney address and even phoney phone number. In fact, they were using the same address and USANA distributor genealogy reports show it by the thousands. This caused the Hong Kong active associate numbers to grow to levels that were suspicious: 1 in 100 in Hong Kong were USANA distributors?! Over the past several quarters now, Hong Kong active associates and revenues have declined greatly. USANA claims people from mainland China are no longer joining in Hong Kong. Yeah right...

I suspect USANA is simply fudging their numbers and the auditors have no way to check it. Since USANA allowed phoney addresses to be used thousands of times by Chinese Nationals, I would not put it passed them to simply report the number of Hong Kong USANA distributors minus those that had resided in mainland China. In other words, those from mainland China are still signed up as USANA distributors and in a downline structure, but are simply not being counted in Hong Kong anymore. Nobody can audit the genealogy structure, except the feds.I believe the revenues from Hong Kong are also simply being reported as Babycare revenue.

The main reason for my suspicion has been the fact USANA stopped reporting the number of Babycare associates. Analysts have repeatedly asked USANA to disclose the numbers of Babycare associates during several quarterly conference calls and every time USANA refused to disclose the figures.

My list of USANA disclosures are quite simple this time: DISCLOSE THE NUMBER OF BABYCARE ACTIVE ASSOCIATES.

While you're at it, disclose the number of United States associates, the number of Professional Startup Packages sold, the percent of net revenues that came from USANA associate's initial product purchase used to "activate" their first business center(s), the number of newly recruited associates, and the number of active associates that have been with USANA for more than 2 years.

(I have no stock position with USANA, never have and never will. I have no financial position whatsoever. I gain nothing from my blog. I have never been a USANA associate or an associate from any MLM company.)

Friday, April 11, 2014

FBI and DOJ Are Investigating Herbalife - Watch Out USANA Because Your Business Model Stinks Even Worse!

Today the Financial Times revealed that the FBI and the DOJ have been investigating Herbalife (HLF), another multilevel marketing company similar to USANA (USNA) but much larger. This news comes a month after revelations that the FTC is also investigating Herbalife. This will be an industry wide ripple effect that can collapse every MLM product-based pyramid scheme like Amway, Nu Skin, Monavie, USANA, and hundreds of others that all have very high distributor failure rates.

These failure rates are fixed, predictable, and designed to fail the majority of participants. The general rule is this: Product is overly priced even at the distributor's cost. Product must be purchased periodically throughout the year in order to collect points and be able to receive a commission. The majority of funds used to pay out commission to the distributors is primarily generated by the required purchases made by the distributors rather than from actual sales to people outside the network. Worst of all, about 99% of participating distributors end up losing money and never make a profit.

There are not enough cells to hold all the criminals perpetrating these pyramid schemes. If you believe you have been duped by one of these pyramid schemes I strongly urge you to file a complaint with the FTC or your local government.

Wednesday, March 12, 2014

FTC Opens Formal Investigation Into Herbalife. Look out USANA - Your Pyramid Scheme Is In Jeopardy!

The FTC has opened a formal investigation into the pyramid scheme allegations of Herbalife. I look forward to its conclusions and believe every MLM including USANA will have a grime future if the FTC shuts Herbalife down. Those in USANA or have been involved with them in the past ought to file a complaint with the FTC as soon as they can.

Thursday, January 16, 2014

China Orders Investigation Into Nu Skin for Conducting Illegal Business - Will USANA Be Next?

Quote from Reuters states the following "China's State Administration for Industry and Commerce (SAIC) on Thursday ordered local authorities to investigate media reports that allege skincare products company NU Skin Enterprises Inc distributes false information and conducts illegal business in China, state news agency Xinhua said."

This is exactly what China should do with USANA as well. I have for many years been writing about and showing evidence of massive China fraud regarding the recruitment of Chinese Nationals into USANA's Multilevel Marketing structure. This underground operation involves thousands of members which were all signed up in USANA using the same phoney Hong Kong address in order to circumvent the law. The time is now to act and any investigative firm that wants a lending hand, please contact me.

Sunday, December 15, 2013

After 21 Years USANA Only Considers About 2820 of Their Sales Representatives as Full Time Associates.


http://www.mlmpyramid.com/USANA_Full-Time_Dec2013.pdf
Multi-level marketing company USANA Health Sciences, Inc. has been in business for 21 years and has had a little over 1.6 million sales reps (known as “associates” or “distributors”) join their business opportunity. However, as of December 2013 only about 2820 USANA associates have reached the leadership ranking of Gold Director or higher. USANA refers to this small group of associates as “Full-Time” while the remaining 1.6 million associates as “Part-Time”. So only 0.18% of USANA associates ever made it to at least a gold director status. USANA does not disclose the number of full time associates to people who are being asked to sign up. Doing so may lessen the chances that the individual signs up. Click on the image on the right to view a PDF document that shows the number of full time associates in each of USANA's territories. You can also follow this direct link to the document: www.mlmpyramid.com/USANA_Full-Time_Dec2013.pdf


Market Diamond Director Emerald Director Ruby Director Gold Director Total
United States 66 39 117 389 611
Hong Kong 25 16 96 451 588
Australia 33 31 66 215 345
Canada 30 15 70 193 308
Philippines 6 8 22 130 166
Taiwan 11 6 28 117 162
Singapore 23 6 40 44 113
Malaysia 2 8 16 85 111
Mexico 6 6 12 79 104
Korea 13 6 27 53 99
New Zealand 5 9 11 70 95
Japan 16 1 34 38 89
Thailand 0 1 3 14 18
United Kingdom 0 1 3 4 8
France 0 0 0 2 2
Columbia 0 0 0 1 1

USANA should disclose the total distributor incentives ever paid to these 2820 full time associates.

Tuesday, November 26, 2013

According to a USANA Document, 92% of Commissions Are Paid To Less Than 1% of USANA Distributors

http://www.usana.com/media/File/Prospecting%20page/Tools/US/USANABusiness/US-AveIncome.pdf
On USANA's website is a document titled "North American Average Total Earnings". Using a few of the numbers disclosed in this report, I will demonstrate how about 92% of the commission paid out goes to less than 1% of distributors, leaving only $52 per year on average for the remaining 99% of distributors.

USANA claims $616.72 was the average commission paid out if all 135,590 associates in the North American region are considered for 2011. Multiplying those two numbers together gives the total amount paid in commissions, which is $83.6 million.

In the chart, USANA shows that gold directors makes up 0.5% of everyone, which comes out to 677 associates if you multiply the 0.5% in the "of everyone" column by the total 135,590 associates. USANA also shows for the Gold Directors the percentage of Full-Time associates it represents, which is 67%. Now if you want to know the number of associates in the Ruby, Emerald, Diamond, and Star Diamond categories you simply multiple the percent of full-time for the category, multiply it by the number of Gold director associates and divide it by 67%. Now we have the number of associates for each leadership ranking from Gold Director on up to the Star Diamond Directors, which comes out to about 1009 associates.

USANA states in the report that $76,000 is the yearly average income for a full-time associate. Now multiply the $76,000 by the 1009 full-time associates, which comes out to $76.7 million.

$76.7 million for Full-time associates divided by the $83.6 total commissions paid is about 92%, which is the percentage of commissions paid to less than 1% of all associates.

Interestingly enough, USANA did not even update the report this year to show 2012 figures. Either USANA made a huge mistake in their report, or they do not want to publish any more distributor data that shows how little the majority of distributors make, which is virtually nothing. Certainly not enough to cover the required product purchases every 4-weeks.

Can USANA simply disclose the figures as they once did in their 2005 and 2006 North American Average Total Earnings report by showing the number of associates in each leadership rankings along with the total commission paid out in each of those levels instead of presenting a table that only shows theoretical figures that represents a very small percentage of each leadership level? Or is that just too much to ask?

Thursday, November 14, 2013

About 85 Percent of USANA's Philippine Associates Quit and The Hidden Information in USANA's Regional Data.

USANA Health Sciences made a couple blunders in the last couple days which I believe reveals an 85% dropout figure for the Philippines market which is not being disclosed to shareholders. USANA wrote a press release on November 12, 2013 regarding typhoon Haiyan. The following is a quote from that press release, which is referenced directly from USANA's website (and still there as I write this):

"We have an incredible USANA family of more than 175,000 strong in the Philippines," said Dan Macuga, USANA chief communications officer. "Their courage and goodness inspires our global team. That's why we feel it so important to help them and all those suffering in the aftermath of Super Typhoon Haiyan." - USANA Investor Relations

I wrote about this 175,000 number on my blog a couple days ago and low an behold USANA tried to change the press release some news organizations got by changing one of their own quotes! Some news agencies now have the same press release but with the following change:

"We have an incredible USANA family, 25,000 Distributors strong in the Philippines," said Dan Macuga, USANA chief communications officer. "Their courage and goodness inspires our global team. That's why we feel it so important to help them and all those suffering in the aftermath of Super Typhoon Haiyan." - Prnewswire

How is it that USANA can change a QUOTE that one of their executives made? It's a quote for goodness sake. I want to thank USANA for making two fantastic mistakes.
  1. USANA revealed that the total number of distributors they have recruited in the Philippines over the last 5 years is around 175,000.
  2. USANA reveals that there are only 25,000 active associates currently in the Philippines.

So 85% of the Philippine USANA distributors no longer purchase USANA product or participate in the business opportunity. My previous estimate two days ago was 17,000 active associates or a 90% dropout figure.

Here is the key information shareholders should understand here:
If the Philippines has 25,000 active associates, and the East Asia Pacific region has 60,000 active associates, then that means only 35,000 active associates can account for Australia, New-Zealand, Singapore, Malaysia, and Thailand.

Let me show the last time USANA disclosed active associate numbers by the territory: - USANAWatchDog Blog

Active distributors in East Asia Pacific for Second Quarter 2010 (3 years ago)
Australia and New-Zealand =18,000
Singapore = 5,000
Malaysia = 14,000
Philippines = 7,000
Thailand = Non-existent
This totals to 44,000 active associates.

Fast forward to today: Active distributors in East Asia Pacific for Second Quarter 2013 (today)
USANA states in their SEC filing that East Asia Pacific has 60,000 active associates.

Australia and New-Zealand =14,000 *
Singapore = 3,000 *
Malaysia = 12,000 *
Philippines = 25,000 (recently revealed in press release)
Thailand = 4,000 *

* My guestimate in order to make the numbers add up to the reported 60,000 for the region.
Since USANA no longer discloses active associate numbers for each market they are in, investors are left in the dark about the true operations of USANA. The markets were grouped into “regions” and began only reporting regional numbers.

Based on my guestimate, the following represents the percent change over the last 3 years for those markets:

Australia and New-Zealand = 22% DECLINE
Singapore = 40% DECLINE
Malaysia = 14% DECLINE
Philippines = 257% INCREASE
Thailand = new market

Wednesday, November 13, 2013

USANA's True Health Foundation Donates $20,000 to Victims in Philippines after Typhoon Haiyan Hit. USANA Also Reveals 175,000 Associates In Philippines.

USANA Health Sciences announced in a press release on November 12, 2013 that they donated $20,000 through their True Health Foundation to help the victims of typhoon Haiyan that decimated the Philippines. This is a good thing and I have no problem with that. In fact, I want to commend USANA on their donation. However, USANA made one very interesting statement.

"We have an incredible USANA family of more than 175,000 strong in the Philippines," said Dan Macuga, USANA chief communications officer. "Their courage and goodness inspires our global team. That's why we feel it so important to help them and all those suffering in the aftermath of Super Typhoon Haiyan." - USANA Press Release
Dan Macuga just revealed that USANA has 175,000 associates in the Philippines since they opened there in early 2009. Would USANA care to disclose the current number of "active associates" for their Philippines market? We know it can't be more than the total East Asia Pacific region which they claim has 60,000 active associates as of the end of Q2-2013. I'll remind you that East Asia Pacific is made up of the following territories: Australia, New Zealand, Singapore, Malaysia, the Philippines, and Thailand.

I believe USANA's Philippines active associate numbers for their latest quarter would be somewhere around 17,000. This would reveal that 90% of their associates stopped purchasing USANA product and quit the business opportunity. This should be a clear indication of the real effectiveness of USANA's products, the MLM business model, and how much their associates really love popping the pills. Most of USANA's markets are saturated and unable to recruit more associates than drop out.

Investors and stock analysts should demand that USANA disclose the active associate numbers for each territory rather than just 3 regions. USANA used to disclose that information but no longer feels their shareholders deserve to see the whole picture. Stock analysts have repeatedly asked USANA the number of active Babycare Associates during conference calls and every time USANA refuses to disclose the figures.

It seems USANA would rather operate their publicly traded company in an Enron sort of fashion. Only disclose what doesn't reveal the truth about the numbers.

Tuesday, October 22, 2013

USANA 2013 third quarter earnings prediction by the USANAWatchDog

October 22, 2013: USANA Health Sciences, Inc (USNA) will be releasing their 2013 third quarter earnings statement after the market closes.

Here's the USANAWatchDog prediction:
- Record net sales

- United States, Canada, Australia, New Zealand, Japan, South Korea,  active associates flat.

- Lite associate participation in the newest market Columbia and nothing to brag about.

- Hong Kong, Thailand, Malaysia associate participation slightly up.

- Double digit percentage growth in the Philippines, possibly around 40% year over year.

- Mainland China growth for Babycare up substantially and possibly accounting for a third of their total net sales.
 - Preferred Customer growth FLAT or decline.


There may be some discussion about new product ideas or even services such as DNA or Genetic testing (possibly as a way to insinuate that their products can help with certain diseases if you can show that there are signs of it from a DNA scan). During their 2013 annual convention several months ago, several hundred associates were surveyed with questions asking about genetic testing. These associates were given special bracelets as a result, which quickly became a rush by associates to find and take this "random" survey...

I don't think they will have any additional information regarding the SEC investigation regarding the insider trading. May probably won't even acknowledge the various investigations that several firms have initiated as a result of the SEC investigation.

There will be no doubt the usual - we are working with US associate leaders to find ways to recruit more associates, as if monthly recruiting contests aren't enough... Same old same old.


Things USANA won't have disclosed in this earnings statement or conference call that follows are the following:
- 99% of USANA associates make no profit
 
- The majority of USANA associates are restricted from retailing any product to the general public even though they are required to purchase over $100 worth of product every 4 weeks. This is forced inventory loading and a major red flag for being a pyramid scheme.

- These same associates that are restricted from retailing product are only allowed to enroll preferred customers into their downline. They must have at least 5 of these preferred customers to be allowed to collect commission as part of the lip service USANA provides to regulators. However, this rule is unchecked and unenforced.

- Around 80% of new associates quit within the first year.

- USANA has recruited over 1.5 million associates since 1992.

- The number of USANA associates that share the same home address. There are several associate Genealogy Reports that show the same home address in Hong Kong was used by thousands of mainland Chinese Nationals, which breaks the laws in China. Since USANA allows an infinite number of associates to share the same home address when they enroll, it becomes very easy to manipulate the associate growth for any given market of USANA's. You want US growth up - have 10,000 Chinese Nationals sign up using addresses from the United States.

- Active Associate numbers for the individual markets of United States, Canada, Mexico, Europe, Columbia, Australia, New Zealand, Japan, MAINLAND CHINA, Philippines, South Korea, Malaysia, Thailand. Since USANA groups their markets into regions, there is no way to compare historical financial data to today's.

- Percentage or amount of distributor incentives paid out to each leadership ranking.

 I believe USANA is conducting a product-based pyramid scheme that has financially harmed over 1 million people worldwide who have signed up with the intent to make money after being prospected using deceptive and misleading information.

Thursday, August 15, 2013

USANA Receives NutriSearch Gold Medal Achievement Again - Thanks To USANA Distributor Gregg Gies

USANA Health Sciences, Inc. receives the NutriSearch Gold Medal Achievement award as well as the "Editor's Choice" award which is mentioned in the latest edition (5th) of The Comparative Guide to Nutritional Supplements. This is no surprise since every single edition of the books rank USANA #1. While Lyle Macwilliam might be the author of the Comparative Guides and owner of NutriSearch, is there someone else that ought to be recognized?

I'm presenting the USANAWatchDog's "Special Thanks" award to Gregg Gies for all his hard work that he put into every edition of the Comparative Guide since 1999. Gregg was responsible for the research, editing, and layout for every edition of the book. Gregg was also co-owner of NutriSearch.

So why does Lyle Macwilliam get all the credit while nobody has ever heard of Gregg whenever the Comparative Guides are mentioned? Could it be because Gregg was also a USANA distributor (ID# 285320)? Gregg joined USANA before the first edition of the book came out. NutriSearch told me he joined before USANA had the preferred customer program and had to join as a distributor and only wanted the product. However, Gregg was a ranked associate and therefore had received commission through the business opportunity. Does the term "conflict of interest" ring a bell?

Interestingly enough, the following quote comes out of the Comparative Guides:
"The research, development, and findings are the sole creative effort of the author and NutriSearch Corporation, neither of whom is associated with any manufacturer or product represented in this guide."
I believe Gregg's involvement in the Comparative Guides and Nutrisearch completely contradicts the above quote and discredits the entire book, awards, and USANA's integrity.


I have written about this in much greater detail on a previous blog entry titled "USANA and the Comparative Guide to Nutritional Supplements - A Symbiotic Relationship"

Wednesday, July 24, 2013

Citron Research Uncovers Thousands of Fraudulent USANA Associates Living in Mainland China

July 23, 2013 Citron Research has uncovered evidence that USANA Health Sciences, Inc (USNA) has recruited thousands of people from mainland China into their Multi-Level Marketing (MLM) compensation plan. A four month long investigation by Citron Research has revealed the enormity of the situation. China's direct selling laws prohibit any MLM business from operating in their country. However, USANA has been recruiting thousands of China's citizens by having them use an address from Hong Kong. In fact, thousands of these recruits used the same Hong Kong address with the sole purpose to circumvent China's laws and to try and hide under the radar.


Citron Research obtained genealogy reports of several top USANA associates whose downline consisted of thousands of associates all sharing the same address. This list contained email addresses and phone numbers of these associates. Every associate Citron contacted on that list that showed a Hong Kong address all actually live in mainland China.

When this was revealed last year by Citron Research, they only showed evidence of a couple associates from mainland China signed up under Ada Chai, a 2-star diamond director that USANA terminated shortly after the scheme was revealed. USANA quickly made a statement simply claiming they do business legally in mainland China through Babycare and never even bothered to address the fact that Chinese Nationals are being recruited into USANA through Hong Kong.

So USANA admits it is illegal for Chinese Nationals to sign up as a USANA distributor in Hong Kong because Ada Chai was terminated for the action. However, Ada's terminated was nothing more than lip service to shareholders and federal regulators because she was a scape goat. The fact of the matter is USANA has been fully aware of how massive this illegal activity is for the following reasons.

October 6, 2009 - USANA sends out internal memo contains the following information about mainland China USANA distributors: INTERNAL MEMO (rogue associates in mainland China)
VI. Question #6: Which market experienced the greatest sales growth from 2007-2008, and by how much?
i. Answer: East Asia (Hong Kong mainly and a little Taiwan), increased by almost $13 million.
ii. Things to look out for – rogue associates in Mainland China, trying to order US product.


IV. What is the biggest market that buys our products that we are not eligible to operate in?
i. Once again I couldn’t give you an exact answer on this. Since I work with our Asian markets, I know that a large sum of product ends up in China, but I’m sure product somehow gets shipped to other unauthorized markets as well...
 
July 28, 2011 - USANA CEO Dave Wentz admits during a financial conference call that a percentage of Hong Kong distributors are actually Chinese Nationals: TRANSCRIPT
question by John San Marco at Janney Montgomery Scott LLC:
"Do you know what the percentage of your Hong Kong associates that are actually Chinese nationals?"

USANA's Dave Wentz replies back with:
"We definitely have a number of people who are building in Hong Kong. We do not have a percentage or have a number that we could point to with any accuracy."

John San Marco asks USANA if there are any Chinese Laws that prevent Chinese Nationals from doing any sort of multilevel marketing outside their borders.

USANA's James Bramble responds with
"Well if an individual does not have residency in Hong Kong and the ability to build in Hong Kong, then they can only build in China."

November 29, 2012 - Citron Releases investigative report that reveals 2-star diamond director USANA associate Ada Chai actively participated in the recruitment of Chinese Nationals into her USANA downline. As a result of this report, USANA terminates Ada Chai. USANA: An Arresting Story by Citron Research


January 25, 2013 - USANA posts an internal memo that reveals the fact USANA allows associates to use the same address over 15 times: INTERNAL MEMO (associates using same address)

- First, as of January 26th the online enrollment system will not accept any address as a home address if that address has already been used by more than 15 other active associates.
          - Limited to main addresses only
          - however will not catch spelling or abreaviation differences
                - example: 123 Jon Boulevard vs. 123 Jon Blv.
          - The example would read as two different addressses
          - This will need to be evaluated and reported to compliance when noticed
          - This prohibition can be manually over-ruled by a DSR so that in the extremely rare circumstance that more than 15 associates truly do share the same address they simply need to enroll by phone.
          - A DSR will then verify that the address is really their address and can complete the enrollment.
DSR = Distributor Services Representative


March 10, 2013 - In USANA's 2012 10K SEC Filings the following statement was made regarding the November report by Citron Research: USANA 2012 10K SEC Filing
"More recently, in November 2012, we were again the target of false and misleading statements concerning our business practices, particularly in China and Hong Kong. This adverse publicity also adversely impacted the market price of our stock and caused insecurity among our Associates. There can be no assurance that we will not be subject to adverse publicity or negative public perception in the future or that such adverse publicity will not have a material adverse effect on our business, financial condition, or results of operations."
The report by Citron in November did not contain "false and misleading statements" because USANA terminated Ada Chai after the report was released.


July 23, 2013 - Citron Research uncovers THOUSANDS of USANA distributors living in mainland China: Creating a Criminal Conspiracy out of Your Own Customers by Citron Research


I personally believe USANA cannot plead ignorance because they play an active role in hiding the location of their distributors. USANA should disclose to shareholders the percentage of net sales that was the result of USANA distributors living in mainland China. Chinese authorities should revoke Babycare's direct selling license as a result USANA's strategic circumvention of their laws.

Tuesday, April 23, 2013

USANA First Quarter Earnings for 2013 - What About Those Undisclosed Statistics? What Should USANA Disclose?

USANA Health Sciences, Inc. (NYSE:USNA) releases their first quarter 2013 financial earnings after the market closes today. Through my research over the years I have found the following statistics about USANA which I believe are pretty accurate and should be considered while reviewing USANA's quarterly result:

Over the last 21 years of USANA's existance, they have recruited about 1.5 million associates.

Over 99% of USANA's associates never made a profit, and instead lost money.

At the beginning of the quarter, USANA had about 247,000 associates who have purchased product during the previous three months. This means 83% of USANA's associates have stopped doing business with USANA when considering the total ever recruited.

Roughly one third of USANA associates, or 82,000 are “active associates” as defined by their policies and procedures (having personally purchased over $100 worth of product during a four week period in order to qualify for commissions). This contradicts their 247,000 active associates as defined and reported in their SEC filings (having simply purchased a USANA product).

USANA recruited about 60,000 new associates during the first quarter of 2013. In order for new associates to begin, they must activate atleast one business center which requires over $200 worth of products to be personally purchased by the associate on top of a $29.95 startup fee. This amounts to about $13.8 million just for these 60,000 new associates to get started.

The majority of USANA associates are not permitted to resell product to retail customers because they are classified as "non-distributing" associate. These same associates are still required to personally purchase product over $100 worth of product every four weeks as part of their obligation toward USANA if they want to be eligible to collect a commission as well as grow and keep their downline and/or preferred customer purchase volume points. This is a blatant case of inventory loading as these associates are stuck with product they are not allowed to sell.

USANA classifies a “full-time” associate as one who has reached the leadership rank of “Gold Director” and up. After 21 years in business, USANA has about 2900 full-time associates which is only 0.8% of their active associates as defined by their SEC filings.

The majority of distributor incentives paid to their distributors goes to this top 0.8% which are Gold Directors and up. Two thirds of USANA associates never received a single penny in commissions.

There aren't enough preferred customers to cover the 5 customer rule (anti-pyramiding rule) to justify paying commissions to the majority of those associates who collected a commission. Most associates who collected a commission are still losing money.

I believe there are more Chinese Nationals who are USANA associates (illegally participating in Multi-Level Marketing) than there are Chinese Nationals who are Babycare Associates (legally participating in Single-Level Marketing). I believe Chinese Nationals joining USANA account for the majority of USANA's growth in both sales and distributorships as the recruiting in mainland China into USANA's MLM has been in overdrive. I believe these Chinese Nationals are counted toward growth in many of USANA's MLM territories.


USANA should disclose during their first quarter earnings conference call:
  1. the number of associates that received a commission during the quarter and of those how many are non-distributing associates. Dividing the number of reported Preferred Customers by 5 will give you the maximum number of non-distributing associates USANA can pay a commission to.
  2. Number of newly recruited associates during the quarter.
  3. Number of full-time associates currently active with USANA.
  4. The percentage of distributor incentives paid to these full-time associates.
  5. The number of active associates as defined by their policies and procedures.
  6. The actual associate turnover rate (instead of simply stating that it is high).
  7. The percentage of net sales that was the direct result of associates activating or keeping active their business centers.
  8. The amount of sales USANA received as a result of new associates purchasing a $1250 professional enrollment package.
  9. Number of associates that cancelled their distributorship.
  10. Number of USANA distributors (not Babycare) living in mainland China.
  11. Number of associates who share the same home address as two or more other associates (possible Chinese Nationals using an address from Hong Kong or other USANA territories).

Friday, April 12, 2013

USANA May Be Operating an Illegal Pyramid Scheme By Primarily Paying Associates To Recruit Rather Than Selling Product To Customers.



USANA Health Sciences, Inc. (NYSE: USNA) is a multi-level marketing company that pays out commission to their associates who are suppose to have at least 5 customers. USANA admits that paying associates who do not have customers would technically be paying associates to recruit and acknowledge that doing so is illegal.

I have written a report that shows how USANA is paying associates to recruit and have asked USANA to disclose the number of active associates that received a commission check and of those how many are non-distributing associates.