Now that USANA Health Sciences owns BabyCare Ltd in China, will USANA continue to recruit Chinese Nationals into their Hong Kong market? Currently, China has outlawed Multilevel Marketing because they consider it to be a pyramid scheme. Only Single Level direct selling is allowed. Distributors are not allowed to recruit additional distributors.
It appears that USANA and their distributors have been recruiting people from mainland China into their Multilevel Marketing business opportunity through their Hong Kong market. As I pointed out in a previous blog posting regarding USANA's active associates per territory, USANA's Hong Kong territory reveal that 1 in every 135 Hong Kong citizens are active distributors in USANA's business. That's very suspicious when you consider that USANA's United States market has 1 in every 5436 American citizen as an active Usana distributor.
So if USANA's Hong Kong territory has been used to funnel profits to USANA through illegal means (recruiting people from mainland China), and now USANA owns BabyCare Ltd, will those mainland Chinese distributors who joined USANA illegally leave USANA and join BabyCare Ltd instead? I believe this may be the case. This would mean that USANA's Hong Kong active associate figures will begin to drop. Keep in mind, people living in Hong Kong would not be able to join BabyCare Ltd because Hong Kong is not part of mainland China. Now if USANA believes their Hong Kong active associate numbers are going to decline as a result of BabyCare Ltd, then USANA has a responsibility to inform their shareholders since it is a material matter.
Regardless, I firmly believe there is sufficient evidence for a SEC investigation of USANA's distributor recruiting in their Hong Kong territory. I believe this is a SEC issue because if illegal distributor activities within a foreign country such as China is confirmed, it may account for a very substantial amount of USANA's net revenues and gross profits. If this is truly the case, then shareholders may suffer massive loses in their investment in USANA's stock. Another consequence will be a damaging blow to the auditing firm PriceWaterHouseCoopers' reputation since they have been notified of this matter almost a year ago.
I would ask that anyone with additional information or evidence please email me. Your identity will not be revealed.
UPDATED September 21, 2010 at 7:47 PM:
If USANA's management HYPOTHETICALLY told an investment firm that they are expecting Hong Kong active associate numbers to be lower because of BabyCare Ltd, but did not make this statement publicly to all shareholders, does this violate SEC laws due to insider trading?
USANA President and COO, Fred Cooper was in HongKong and Beijing last week, meeting Chinese distributor leaders. He assured them nothing has changed. USANA Hong Kong is still accepting Mainlanders distributorship applications.
ReplyDeleteSo now USANA operation is another "Binary" in China. One through Babycare and another through illegal smuggling.
What's the point of accquring Babycare if Hong Kong smuggling is not stopped?
The reason why Hong Kong smuggling continues is because USANA Chinese distributors are not willing to join in Babycare largely because of its poor compensation plan. Since China is USANA's 2nd biggest market, and soon to be the largest market, if USANA stops Hong Kong smuggling, the stock price will drop dramastically.
ReplyDeleteIf you look at http://finance.yahoo.com/q/it?s=USNA+Insider+Transactions , you will see USANA management has excercised their stock options and sold the stocks during the past weeks, indicating they expect the stock price to fall.
Responding to the comment: "If you look at http://finance.yahoo.com/q/it?s=USNA+Insider+Transactions , you will see USANA management has excercised their stock options and sold the stocks during the past weeks, indicating they expect the stock price to fall."
ReplyDeleteThis can also be an indication that USANA management believes BabyCare Ltd will take Chinese Nationals away from joining USANA in Hong Kong, which will result in a worse than expected financial results for USANA.
If USANA's management HYPOTHETICALLY told an investment firm that they are expecting Hong Kong active associate numbers to be lower because of BabyCare Ltd, but did not make this statement publicly to all shareholders, does this violate SEC laws due to insider trading?
From Usana's announcement: "USANA’s long-term objective for this acquisition, however, is to establish and grow the USANA brand throughout China. In an effort to drive this long-term objective, USANA is already working to license some of its products to BabyCare to enhance BabyCare’s product line."
ReplyDeleteThey have no intention of stopping the recruitment activities within Usana. You might think that if they make Usana products available through retail/babycare, that they would be competing with their own associates. However, since we all know that usana distributors do not really sell product, this is not really an issue.
At least Usana can point to babycare and say "hey look we are doing business legitimately in China"
for 45 million USD, they get a company with established sales, and now Usana can say it does legit direct selling in China, even if they are still doing otherwise.