Watch Out USANA, The FTC Settlement With Herbalife May Collapse The Entire Multilevel Marketing Industry.

After years of investigating, on July 15, 2016 the FTC announced a settlement with Herbalife. The FTC complaint charges that Herbalife participated in Unfair and Deceptive Acts or Practices in violation of Section 5 of the FTC Act, 15 U.S.C. § 45 by promoting a compensation structure that causes or is likely to cause harm to distributors, by making unsubstantiated claims about retail sales income earned by distributors, and by providing distributors the means to engage in fraud. Herbalife must pay $200 million in consumer redress and is ordered to restructure its business model as part of the settlement deal. While many in the media have claimed victory for Herbalife, it may be the critics that have claimed MLMs are pyramid schemes with no retail demand who actually have the last laugh.

Those MLMs with little retail demand for their products will collapse due to the new required rules for MLMs to abide by. MLMs must now be driven by retail sales, otherwise commissions will be reduced to lower levels. This means the top 1% of distributors who have large downlines will be taking a significant cut in their commission because the downline's personal purchases that don't get retailed to customers are not worth as much in commission anymore. This rule was made because distributors were primarily being rewarded for recruiting new distributors (whom end up being required to purchase product every month to participate) rather than for selling product to retail customers. I look forward to the eventual collapse of the MLM pyramid schemes and I thank the FTC for proving my arguments over the past decade to be correct.

Federal Trade Commission v. Herbalife International of America, Inc. - Stipulation To Entry of Order for Permanent Injunction and Monetary Judgement (Court Document)

Statement of the Federal Trade Commission - FTC v. Herbalife International of America, Inc. - July 15, 2016

Herbalife Will Restructure Its Multi-level Marketing Operations and Pay $200 Million For Consumer Redress to Settle FTC Charges
Company Must Tie Distributor Rewards to Verifiable Retail Product Sales And Stop Misleading Consumers about Potential Earnings

USANA Becomes Trusted Partner and Sponsor of the Dr. Oz Show - Gives Preferential Treatment To Gold Directors and Above

USANA's latest marketing campaign designed to get USANA products in the eyes of Dr. Mehmet Oz viewers may only benefit the top 1% of USANA associates Gold Directors and above as well as provide means to falsely satisfy associate's 5 customer rule and fool federal regulators.

According to USANA document Trusted Partner and Sponsor of The Dr. Oz Show - Partnership Guidelines

Allocation of Preferred Customers and Sales Volume Preferred Customers, Sales Volume Points (SVP), and other leads that come in through www.USANAhealth.net - a shopping experience for viewers of The Dr. Oz Show - will be provided to recognition-eligible Gold Directors or above who reside in the United States and Canada. We will allocate leads to each Associate meeting the above criteria, filtering first by pin level and then by application date. That means we will move down the tree of Associates residing in the United States or Canada, going from the longest tenured Star Diamonds to our new Golds. The process will restart each time every eligible Associate has been allocated a new lead. This only applies for www.USANAhealth.net. We will follow existing protocol for anything that comes in through www.USANA.com.

So when someone watches the Dr. Oz show that features a USANA product and goes to USANAHealth.net to order the product or become a preferred customer, USANA gives the commission points and preferred customer to a preferential class of USANA distributors who are Gold Directors and above, which represents less than 1% of USANA associates!

This is a very clever trick by USANA that could be used to fool federal regulators such as the FTC by giving the top 1% of associates (who also happen to account for the majority of commissions paid out) customers as a way to automatically satisfy one of the Amway safeguards - USANA's Five Customer Rule, which was designed to protect associates from falling victim to a pyramid scheme. There are not enough preferred customers according to USANA's SEC filings to satisfy the 5 customer rule for most who received a commission check and I believe there are even fewer retail customers. I believe if the FTC were to investigate USANA, USANA would be unable to produce any proof that the majority of commissions paid out were legitimately paid to individuals satisfying the 5 customer rule.

It may also be against the law for USANA to assign customers generated from the Dr. Oz show exclusively to preferential group of distributors as well as paying them commissions for sales those distributors had nothing to do with.


UPDATE - FEBRUARY 11, 2015:
After the 4th quarter earnings statement was released, president Kevin Guest made the following statement regarding the allocation of customers who purchase from the Dr. Oz show after asked about it from a stock analyst during a conference call:

So we’ve a referral system in place. usana.com has millions of people visit it on a yearly basis. So we do receive referrals that are unsolicited directly from someone. And so we’ve a referral system in place and it's basically the same system that they fall into from a referral system. And it’s computer functioning, it’s non-biased and we distribute those leads just as we would distribute anyone visiting usana.com.  - Kevin Guest - President

 Reference for this quote can be found on the Seeking Alpha transcript of the conference call.

That statement by the USANA president was very misleading when he claimed it was "non-biased". In fact, it couldn't be any more bias. Only Gold Directors and above will benefit, which accounts for less than 1% of USANA's associates.

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

 http://www.usana.com/media/File/Training page/ANZ Training Folder/SEO_NZ.pdf

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.

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.

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.

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.

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).

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.

Read The Report: USANA Watchdog Report on USANA - Paying To Recruit

USANA Q4-2012 Earnings - Questions USANA Should Answer for Shareholders and Federal Regulators

USANA Health Sciences, Inc (USNA) Fourth Quarter Earnings for 2012 are released at the end of the day today. I'll give my two cents followed by a series of questions I think USANA should answer.

Flat to declining United States, Canada, and Mexico active associates. However, USANA might show a gain in North American active associates which could be due to European associate recruiting. USANA continues to combine Europe with United States associate numbers even though the market territories are over 3000 miles apart.

Greater China will see the biggest increase of active associates, which I attribute to mainland China citizens signing up primarily into USANA's MLM opportunity through Hong Kong rather than joining BabyCare which is only a singlelevel marketing company. As of mid-September 2012, I counted roughly 38,000 Babycare distributor IDs issued. It is unknown how many of those are actually considered "active" and how many have already dropped out.

Philippines will probably show gains since my blog is getting a lot more hits from that area of the world. This seems to be a good indication that recruiting is on the increase. Most of the Google searches that come to my website are searching the term "USANA Scam". Typically new recruits or those who have been approached by a recruit search these such terms. I also receive a lot of emails from concerned family members and friends from the Philippines.

Future sales will probably be forecast higher, which is no surprise since USANA increased the price of several top selling products. Shipping charges have been increased as well.


Questions USANA should answer during their 2012 fourth quarter earnings conference call on February 6, 2013.

New distributors who purchase a Professional Enrollment Pack for $1250 get a $100 commission check sent back to them from USANA. No customers were necessary to receive this commission check.

Question 1) How many Professional Enrollment Packs were sold to new sales reps during the 2012 year?

This answer would give investors an idea of just how much in Net Sales USANA makes upfront from newly recruited sales reps. It will also reveal what percentage of the distributor incentives was paid as a result of a phoney commission payout.


USANA has two classes of sales reps: Distributors and Associates. USANA states that "distributors" must satisfy the 5 customer rule by either having either Preferred Customers, Retail Customers, or a combination of the two. USANA goes on to further state that "associates" must satisfy the 5 customer rule by having only Preferred Customers (typically the terms are used interchangeably, except when referring to the 5 customer rule). There were only 64,000 Preferred Customers during the Q3-2012. This amount of preferred customers can only satisfy up to 12,800 active associates. USANA also states that 1 in 3 associates receive a commission check. There were 242,000 active associates in Q3-2012. So according to USANA's numbers, 80,600 active associates received a commission check.

Question 2) How many active associates received a commission check during the last quarter and how many of them are considered "Associates" and how many are considered "Distributors"?

If more than 12,800 sales reps who collected a commission check are officially classified as "associates", then USANA is not enforcing their own 5 customer rule policy.

Question 3) How many retail customers combined do the active associates who collected a commission check have?

It has to be over 339,000 to cover the remaining active associates who collected a commission check.


Over 200 of USANA sales reps are part of the million dollar club. 10 of them are part of a $5 million dollar club. So over $240 million in commission has been paid out to roughly 200 associates since USANA joined the stock market in 1996. That is over 13% of all commission ever paid out.

Question 4) Are the million dollar club members (who have received over 13% of all commission ever paid out) audited to ensure they have 5 or more customers and if so, how frequently are they audited?


USANA's Asia markets have exploded with distributor growth over the last several years. During that time, i have shown on numerous occasions how unlikely these numbers are real. In fact, according to USANA, 1 in every 100 Hong Kong citizens is a USANA distributor. Citron Research uncovered USANA distributors recruiting Chinese Nationals and training them on how to circumvent US and Chinese laws by opening a bank account in Hong Kong and signing up under their sponsor's home address. Recently I have uncovered a USANA document that shows how USANA has no limit to the number of distributors that can sign up under the same address let alone the same credit card.

Question 5) How long has USANA allowed three or more associates to sign up using the same address?

Question 6) How many USANA associates share the same address with 3 or more other associates?

Question 7) How many USANA associates share the same creditcard with 3 or more other associates?

Question 8) How many Chinese Nationals who live in mainland China have joined USANA's MLM business opportunity in other markets such as Hong Kong, Australia, Philippines, Malaysia, etc...? (Not related to BabyCare)


USANA has defined an "Active Associate" two different ways. In the SEC filings it states that an active associate has purchased product at anytime during the most recent three months. In every single other publicized location regarding USANA's business opportunity, an active associate is defined as one who personally purchases over 100/200 PSV points in order to qualify for commissions.

Question 9) What exactly is an "active associate" as described in your SEC filings. Is it an associate who could have simply purchased a single tube of toothpaste for $7.50, or is it an associate who has met the 100/200 PSV point requirement ($110 to $240) to be commission eligible?


The FTC has made the following statement in a letter to the Direct Selling Association: "a multi-level compensation system funded primarily by payments made for the right to participate in the venture is an illegal pyramid scheme."

Question 10) What percentage of net sales was the result of the distributor's PSV purchases to be commission qualified and remain as "active associate" status?

The FTC letter further states that "Modem pyramid schemes generally do not blatantly base commissions on the outright payment of fees, but instead try to disguise these payments to appear as if they are based on the sale of goods or services. The most common means employed to achieve this goal is to require a certain level of monthly purchases to qualify for commissions. While the sale of goods and services nominally generates all commissions in a system primarily funded by such purchases, in fact, those commissions are funded by purchases made to obtain the right to participate in the scheme."


USANA has never published a worldwide statistic of their distributor's leadership ranking and the percentage of distributor incentives paid out to each of those rankings. Doing so I believe would raise a red flag to federal regulators like the FTC as it would reveal just how little USANA distributors make.

Question 11) How many distributors in 2012 were in each of the Leadership Rankings from plain "associate" (commissionless) to "sharers" (bare minimum) to "#-Star Diamond Directors" (yes, each of the star rankings listed separately)?

Question 12) How much distributor incentives was paid out to each of the leadership rankings during the 2012 year?


It has been stated for many years now that MLM companies (including USANA) have a 99% distributor failure rate, meaning they did not make a profit. Based on my years of research into USANA I also have come to the same conclusion based on available information I have been able to find. However, USANA could clarify this issue once and for all and answer the following:

Question 13) What percentage of USANA sales reps make a "profit" after expenses are subtracted?


USANA states in their SEC filings "we experience a high turnover among new Associates from year to year". This is very vague and could mean 10% or it could mean 90%. This needs to be clarified with a real value.

Question 14) What is USANA's distributor turnover rate in 2012 among new associates from year to year in terms of a percentage? 


USANA claims to have about 242,000 active associates as of Q3-2012. Last year at this time it was said to have 222,000 active associates (Q4-2011). This would lead investors to believe USANA recruited 20,000 more active associates. However, because of a high turnover rate, it is actually unknown how many new associates joined.

Question 15) How many unique individuals were USANA Active Associates during the 2012 year (total)?

Question 16) How many associates left their distributorship and cancelled their membership?


I believe many USANA associates stay as a member because upline leaders discourage their members from cancelling memberships and tell them that one day they may have a downline under their business center. So the idea is that all these associates who didn't drop out have to do is keep paying a yearly renewal fee of $20. As of mid-September 2012, I have counted over 1.3 million USANA distributor IDs.

Question 17) How many distributor's paid a $20 renewal membership fee during the 2012 year?

Question 18) How many Business Development Systems (BDS) were sold or given to new distributors throughout 2012?


All of these questions are useful in continuing to build the case that USANA is a product-based pyramid scheme similar to the MLM Fortune Hi-Tech Marketing (FHTM) which was recently shut down by the FTC. It may be that the FTC chose to go after Fortune Hi-Tech first, build a strong case, and then apply that case and the judges rulings to other MLMs in the industry like Herbalife (HLF), Nu Skin (NUS), Amway, Monavie, Ariix, and hundreds of others that all have a similar business model.

Disclosure: I have no stock position in USANA or any of their competitors. I have never and will never hold a stock position with USANA. I am not paid to write this article. I make no money from this blog. I have never and will never be a USANA distributor or a distributor of any other MLM company.

USANA Allows Distributors To Sign Up Under The Same Home Address and Credit Card - Recipe For Circumventing Foreign Laws

USANA Health Sciences, Inc (USNA) has virtually expanded their Multilevel Marketing (MLM) operation from about 19 markets to every market in the entire world.

A recently written internal USANA document reveals a secret policy that only insiders and several top distributors are aware of. This hidden policy allows over 15 active associates to use the same home address as well as using the same credit card. I cannot find this sort of policy mentioned anywhere on the web or through distributor literature. This policy essentially allows USANA distributors to sign people up into their MLM downlines within any country in this world including unauthorized markets such as mainland China, which has laws preventing their citizens from participating in MLM schemes.

Internal USANA document regarding address and creditcard enhancements states the following:
QUOTE

         Address and Credit Card System Enhancements

    - System enhancements took effect starting as of January 26, 2013.
    - As each of you are aware, in order to enroll as an associate in any market where USANA does business an associate must provide their correct address in country to show residency and to allow us to contact them.
    - In addition, downline purchasing is strictly forbidden, meaning an associate must pay for his or her own orders.
    - These policies are difficult to enforce at times because an associate may “lend” the use of his or her address to downline members allowing enrollments that do not meet residency requirements.  Likewise, an upline may use the same credit card to pay for all orders in an organization, thus causing compensation plan manipulation.
    - The compliance team has been charged with enforcing these rules but has found it difficult.
    - With project upgrade complete IT has been able to help this situation with two new enhancements.
    - 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.
    - Second, as of January 26th our online product order system will not accept as payment for product any credit card that is already in use on more than 15 active distributorships. 
          - This rule will not apply for the time being in Mexico or the Philippines until we are comfortable that we have a working solution in those markets for distributors who do not have a credit card. 
          - In addition, this prohibition will not apply to an associate’s first order as it is common for a sponsor to lend his or her credit card to a new associate and take cash as payment for the first order.
          - As with the first system enhancement, this prohibition can also be manually over-ruled by a DSR where the DSR speaks to the associate and the upline and verifies that the associate has paid cash to the upline and the upline authorizes use of the card.
    - Note that these enhancements do not represent a change in policy.  The policy remains that each associate must pay for his or her own orders and provide a legitimate address to enroll.  These enhancements simply will allow us to better enforce rules that were previously more difficult to enforce.
    - Kevin Guest and Deborah Woo informed each of the IDCs about this new enhancement in November and there were no complaints.
    -  Brent Neidig will be writing a compliance corner article to remind associates of these policies.
    - In addition associates who have previously had a practice of signing many people up at one address or with one credit card will notice the restriction.
    - Please make sure you are prepared to respond to these associates and help them understand the restrictions and that your DSRs, compliance and field development staff

UNQUOTE

DSR stands for Distributor Services Representative
IDC stands for Independent Distributor Council

USANA's 2012-2013 Independent Distributor Council (IDC) is made up of the following distributors:

Zak Ross – 10 Star Diamond Director
Simon Chan – 3 Star Diamond Director
Tony and Tammy Daum – 2 Star Diamond Director
Daniel and Paige Hunter – 2 Star Diamond Director
Jordan Kemper – Diamond Director
Tom and Lorie Mulhern – Diamond Director
Jared Creds – Ruby Director
Soomin Kim – Ruby Director

USANA is only talking about restricting their ONLINE ENROLLMENT SYSTEM from allowing associates to sign up more distributors under the same address if they already have 15 active associates sharing that address. Obviously distributors have been doing this or else USANA would not have to put in place a limit on the online enrollment. Does it really matter though since all the associate has to do is call USANA's customer service to get an override.

This policy outlined in the internal memo about allowing over 15 associates sharing the same address contradicts USANA's published policies and procedures which states the following:
QUOTE

3.13 One Distributorship
 

An Associate may operate, receive compensation from, or have an ownership interest, legal or equitable, as a sole proprietorship, shareholder, trustee, or beneficiary in only one USANA Distributorship. However, notwithstanding this rule, your spouse may become an Associate and operate a second distributorship as long your spouse’s distributorship is placed below one of your business centers and not in a cross line sales organization. The second business must be a bona fide independent business that is operated by the person listed on the agreement and not by the owner of the first business.

UNQUOTE

Now unless USANA executives have been watching too much "Sister Wives" on The Learning Channel, there is no way somebody has 4 spouses let alone over 15! So aside from polygamy, USANA's policies and procedures limits a household to only two distributor accounts. The policies and procedures USANA publicly publishes serves as nothing more than lip service to federal regulators. USANA's unpublished set of policies shown in these internal memos are the real policies that the federal regulators should be interested in.

A couple years ago there was another internal USANA document regarding compliance and training for their employees that makes the following contradictory statements:

QUOTE (my emphasis in red)

VII. Questions from DSR
II. When can we get the computer to list accounts with same address, phone, ssn, etc.
 

i. We already have access to most of that information, it just doesn’t automatically show us it. We have spoken with IT and the more actions we place on the system, the more burdensome it becomes and the slower it  operates. So for now, we have to run our own little reports to try and find multiples.

UNQUOTE

At the time why would USANA be interested in finding distributor accounts that share the same address? USANA admits they have access to the information and is fully capable finding these "multiples". Obviously there was a problem back then with associates using the same home address.

Lets look at another quote regarding credit card fraud and usage.

QUOTE (my emphasis in red)

III. Fraud
iii. Credit card usage

1. If someone is trying to use a card other than their own, do not let them. There have been several instances of fraud lately where people’s cards have been stolen and used to purchased product.

2. A good response would be: “I noticed that the name on this card is different than your own. You may not be aware of this, but recently there have been several instances where credit card fraud has taken place. Because of this, we are trying to increase our associates protection by only allowing the account holders credit card to be used  on their account. So unfortunately I can’t let you use this credit card. I know it may be a bit inconvenient, but I’m sure you would be glad if we
stopped someone else from using your card on their account without  your authorization.”

VII. Questions from DSR
III. How rampant is credit card fraud in the system?
i. Lately we have had several issues with Fraud. I don’t have an exact  number on how many issues we have, but it is a growing concern. As a result, we are currently working on changing our credit card policy to ensure an added level of protection for our associates.

UNQUOTE

According to USANA's 2010 internal document, credit cards can only be used on the card holder's own distributor account. Here USANA discusses trying to tackle credit card fraud. Yet, in their latest internal document just recently written they allow over 15 active associates to all use the same credit card.


So why does any of this matter at all? For starters, it allows a distributor to recruit anyone from anywhere into their downline. All they have to do is use the sponsoring distributor's address and credit card. The sponsoring distributor is simply reimbursed by those in his or her downline who reside in countries that are not authorized to participate in MLM companies. This leads me to China.

For several years now I have been writing on my blog about mounting evidence that USANA has been signing up Chinese Nationals into their MLM compensation plan. It is against the law for Chinese Nationals to own or operate a MLM distributorship. USANA is not authorized to conduct MLM activities within mainland China.

So one possible way USANA can circumvent China's laws is to sign up Chinese Nationals in other countries such as Hong Kong and use the sponsoring distributor's Hong Kong address. By doing so, it removes any paper trails within USANA's computer system and from auditors eyes. The shareholders simply see USANA's Hong Kong market rise sharply while the rest of USANA's markets hold steady or even decline. This sharp rise in sales and distributorships in Hong Kong sends USANA's stock price soaring. When the price is right, insiders dump millions of dollars worth of stock (Myron Wentz sold over $30,000,000 in November and December).

In November, Citron Research released evidence of Chinese Nationals being recruited in USANA's MLM compensation plan by a distributor from Hong Kong. Each of the Chinese Nationals used the address of the distributor from Hong Kong. They were also instructed to open up bank accounts in Hong Kong as well. This internal memo is strong evidence that USANA has in place a policy that allows for such questionable recruiting activities. USANA filed a response with the SEC regarding the Citron report and simply stated that they operate BabyCare Ltd. in mainland China and do it legally. USANA's response diverges from the actual issue, which is the recruitment of Chinese Nationals into USANA's MultiLevel Marketing plan through Hong Kong, not the BabyCare SingleLevel Marketing plan already established in mainland China.

With unethical hidden policies like these it's no wonder USANA executives are leaving like rats on a sinking ship. Someone should ask USANA during their financial conference call next week "how many associates share the same address with three or more other associates and what percentage of net sales did they account for."

I'll finish with one of my favorite non-disclosures by USANA revealed in the older internal USANA document:
QUOTE

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…

UNQUOTE

A Large Sum sounds like a lot to me.

Now that the FTC has shut down MLM company Fortune Hi Tech (FHTM), could USANA be next in their sights? I will discuss this in my next article.

Disclosure: I have no stock position in USANA or any of their competitors. I have never and will never hold a stock position with USANA. I am not paid to write this article. I make no money from this blog. I have never and will never be a USANA distributor or a distributor of any other MLM company.

The Number One Product USANA Distributors Sell is the Business Opportunity Membership. Is This Worse Than Herbalife and Amway?

USANA distributors' number one selling product is not a vitamin supplement or skin care product. It is actually the business opportunity membership. That's right, a $19.95 startup fee someone pays when they are recruited into USANA's business opportunity and placed in the distributor's downline. This might sound unbelievable but I believe it is true. USANA product cannot be retailed for a profit because 1) “preferred customers” get the product at the same cost as distributors and 2) the product is absurdly overpriced because of the percentage of “distributor incentives” paid out, so there is zero demand for the product above the distributor's cost. So the only thing reasonably priced is the actual membership fee to join as a USANA distributor. All the distributor has to do now is convince others that they too can become rich by signing up in USANA's business opportunity.

USANA claims distributors aren't paid commission from this signup fee and claims that doing so would make them an illegal pyramid scheme. USANA claims that if commissions are paid based on product sales, then it is not a pyramid. However, this $19.95 fee alone doesn't let the newly recruited distributor even start their USANA business. Their business venture does not begin until they “activate” a business center. To do this, the new distributor must “personally purchase” over $220 worth of product, which is 200 “personal sales volume” (PSV) as USANA calls it. Once activated, the new distributor can take part in USANA's compensation plan.

USANA considers this required personal purchase to activate the new distributor's status as a “sale”. Did the distributor who recruited this new member sell the product to the new distributor? Absolutely not. Did the new distributor purchase the product from the person who recruited them? Not at all. The only product that was sold by the distributor was a membership (recruitment). So USANA gives Group Sales Volume (GSV) points to every upstream member above the newly recruited distributor based on the $220 worth of product purchased. These GSV will travel all the way up to the very first USANA distributor if it needs to. Once enough GSV points are accumulated, they are converted into commission dollars.

After the newly recruited distributor has activated their business center, they must now personally purchase 100 points worth of product ($110) every 4 weeks to remain active. If the associate fails to make this personal purchase, that distributor is no longer considered active, is no longer able to make any commission, and loses all their accumulated GSV points (if they had 10,000 GSV, they now have 0).

Now imagine over 220,000 USANA active distributors all making their required personal purchases in order to stay active. Many are required to personally purchase 200 PSV since they have multiple business centers. That's a lot of product purchased from USANA but none actually sold by USANA distributors. Again, the primary product sold by USANA distributors is the membership. So why should any of these distributors make any commission whatsoever from these “required” product purchases made by every active distributor?

The only real customers are the USANA “preferred customers”. There are around 64,000 of them. In 2011, preferred customers only account for 10% of USANA's net revenue, which is virtually insignificant. 10% of $589 million is only $58.9 million. The amount of commission paid out is 45% of net revenue. So preferred customers only account for around $26 million in commission paid out. However, USANA paid a total of $265 million total. Where did the remaining $239 million in commission funds come from? USANA distributor's required personal purchases.

The FTC wrote a letter tothe Direct Selling Association back in 2004 the states the following: (my emphasis in bold)

QUOTE

...a multi-level compensation system funded primarily by payments made for the right to participate in the venture is an illegal pyramid scheme.

…

Modern pyramid schemes generally do not blatantly base commissions on the outright payment of fees, but instead try to disguise these payments to appear as if they are based on the sale of goods or services. The most common means employed to achieve this goal is to require a certain level of monthly purchases to qualify for commissions.

UNQUOTE

There is no question about it, USANA is operating as a pyramid scheme. Federal regulators have completely ignored complaints from thousands of MLM distributors and critics and have instead made it easier for these kinds of scams to exist (FTC's business opportunity rule exempts multilevel marketing business opportunities). Hopefully the recent attention Herbalife has been receiving from pyramid scheme allegations of their own draws enough attention to the MLM industry that federal regulators are forced to investigate frauds like USANA. Hundreds of thousands of USANA distributors are losing money and never even had a chance to make a profit. A 99% failure rate cannot and should not be ignored. And don't forget, USANA's #1 product sold by its distributors are memberships into the business opportunity.

Citron Research Reveals Evidence of USANA's Illegal Activities In Mainland China

Citron Research has just backed up everything I have written about USANA's fraudulent China activities. They even have undercover investigative evidence! Be sure to read the full investigative report! Allegations are that USANA has been illegally recruiting Chinese Nationals into their Hong Kong MLM compensation plan.

For additional information regarding the allegations of USANA's fraudulent China activities, read through my blog and you will find several years of information revealing it all!

Evidence of USANA Inventory Loading Their Distributors

Inventory Loading is a key sign of a modern day product-based pyramid scheme.

USANA requires their associates to purchase a MINIMUM of 100 points worth of product every 4 weeks. This comes out to about $120 in product purchases. Each "active" associate made such purchase. But why? Every active associate who I have conversed with on the internet has claimed that they "wanted" the product, so the purchase was okay. But are those claims true, or just something USANA has conditioned these active associates to say to make excuses for these ongoing purchases?

If active USANA associates were just consumers of their own product and is why they purchase about $120 worth of product every 4 weeks, then why is it that Preferred Customers (those who are actually consumers who "want" the product) only purchase on average $70 worth of product every 4-weeks? Perhaps you are wondering where this $70 figure comes from.

According to USANA's latest financial SEC filings 67,000 Preferred Customers were responsible for $15.4 million in net sales, which is 10% of USANA's total net sales (associates accounted for the remaining 90%!). This works out to an average of $70 per preferred customer every 4 weeks. I use a 4-week calculation because USANA requires purchases from their associates on a 4-week cycle (13 times a year).

To me, this is proof that associates are primarily making these ongoing $120+ purchases every 4-weeks so they abide by USANA's rules and remain "commission eligible" for the 4-week period. If the associate fails to make this mandatory purchase, that associate is no longer considered "active", is stripped of all accumulated groups sales volume generated from their preferred customers and downline associates, and unable to collect any commission. That's a pretty severe penalty, especially when upline associates (typically the leaders) are continually pressuring their downline to remain on "autoship" and make those $120+ payments every 4-weeks.

Since most product purchases from USANA are from the active associates (219,000 of them), and each of them has to purchase about $120 worth of product every 4-weeks in order to participate in USANA's compensation plan, and the fact that preferred customers only account for about $70 on average, it is no wonder the primary focus in USANA is to market a business opportunity rather than product. The product is only a disguise as well as "tokens" used in a grand elaborate modern day product-based pyramid scheme.

This mandatory requirement for associates to purchase USANA products is known as "Inventory Loading". That is, the associates are being forced to purchase more product than they can actually resell. Assuming the associate only really consumes at most $70 worth of their $120 purchase, they are left with $50 sitting in their cupboards. USANA claims they can "retail" this product to make a profit. However, preferred customers obtain the product "at the same discounted price as the associates do". This means, there is no chance that any associate can resell their personally purchased product for more than they paid themselves. Unfortunately, the associate is also stuck with a nice shipping charge as well. To top it all off, many USANA associates resort to EBAY to "dump their inventory loaded purchases". These typically auction for 50% less than the associates own cost. Inventory Loading is one of the key indicators of a product-based pyramid scheme.

So if active associates were telling the truth, and that they really wanted $120 worth of product every 4-weeks ($1560 a year), then why does USANA have this "Mandatory" purchase in the first place? What would happen if USANA could no longer be allowed to "force" their associates to make these $120 purchases in order to participate in the compensation plan and be eligible for commissions? I think the answer is obvious. USANA would go out of business in a matter of months because associates would only purchase the amount of product they actually wanted. I would go as far to claim that most associates would not purchase any product at all.

So here's a challenge to USANA. Why not be one of the first MLMs that does not require their distributors to personally purchase the product they are trying to sell? What would USANA be afraid of, reality???

If you are an ex-USANA associate or know someone who is, I suggest filing a complaint to the FTC if you feel you have been cheated out of your money. I have an blog posting that explains how to go about filing a complaint and why it is extremely important to do so. See my Filing FTC Complaint Against USANA posting.

Ex-USANA Associates Need To File A FTC Complaint If They Feel USANA Operates A Pyramid Scheme.

If you believe you have been victimized by USANA and believe they are operating a pyramid scheme, then you need to file a complaint with the FTC. This is very important.

Most people who have joined USANA's business opportunity have lost time and money. I strongly believe USANA is operating an illegal pyramid scheme. According to the a FTC letter: "...a multi-level compensation system funded primarily by payments made for the right to participate in the venture is an illegal pyramid scheme." It should be noted that 90% of USANA's net revenue comes from their distributor's own purchases. It should also be noted that USANA requires their distributors to purchase about $1560 each year for a 1-business center account and about $3120 each year for a multi-business center account. These required purchases give the distributor the right to participate in the business venture and be eligible for commissions. If the payment is not made, the associate will lose all group sales volume accumulated (converted to commission when enough points accumulate). Seems like a pyramid scheme to me!

The federal agency responsible for investigating Multi-Level Marketing (MLM) companies is the Federal Trade Commission (FTC). The only way the FTC will investigate whether USANA is a pyramid scheme is for "enough" victims to file a complaint. So the most important thing anyone can do who believes they were swindled is to file a complaint with the FTC. It is very simple to file a complaint, although the task may seem daunting. I will provide a step by step walk-through to help guide you through the process.

Click on the following: FTC Complaint Form. This will open into a new window. You may receive an annoying popup from the FTC regarding a survey, just close that window. (That's just one of their attempts to annoy you and prevent you from actually filing out a complaint)

Fill out your contact information and whether you are submitting this complaint on behalf of someone else. Lawyers or attorneys might fill out the form on behalf of their client. However, since there are no actual instructions with this complaint form, I'll assume anyone can fill out this form on behalf of a friend or family member who is being or has been swindled by USANA.

Next, answer whether you are a member of the armed forces or a dependent. Not sure how this is relevant to the complaint, but whatever.

The next step is to choose what type of complaint you are filing. The correct option on this screen is to choose "OTHER" because none of their initial options have anything to do with business opportunities.

Now choose "Business Opportunity and Employment Offers" in the upper menu box. After a few seconds, you'll be able to choose "Multi-Level Marketing/Pyramid Schemes" in the lower box. I find it interesting that the FTC groups those two terms together.

Choose ow you were first contacted regarding USANA's business opportunity. Your choice will will result in a different set of follow up questions. "Email" contact will ask many questions regarding emails. "Phone" with its own set of questions.

Eventually you will come to the question that asks if you know the name of the company or individual in your complaint, or have additional information about them? This option should be chosen as "YES"

This part of the form asks that you tell the FTC about the company (USANA). Company Name "USANA Health Sciences". Address is "3838 West Parkway Boulevard | Salt Lake City, UT 84120". Phone: 801-954-7200.

Additional information is desired but not mandatory. Questions such as how much money you spent on the business opportunity, When you were first contacted, The name of the individual who contacted you, etc...

Now you are asked about "Consumer Information". Here is where you enter who the victim is. It may be the same information as the one entered earlier for the contact info, or may be the person you are filing this complaint in their behalf (Friend, Family Member, Client, etc...)

This next part is the meat of the complaint form. Here is where you get to explain how you were victimized. Perhaps you were told by your upline that you must stay on autoship for the business to work. Maybe you were told only quitters fail. Perhaps you were told you could make millions and were shown pictures of fancy houses and cars in their literature. The FTC needs to know your story.

Finally, you will see a confirmation screen where all the information you entered is displayed. Once you have confirmed the information is correct, click "SUBMIT" at the bottom of the form.

While the FTC complaint form seems long and tedious, it is very important to do. Many people might not file a complaint because they feel embarrassed or ashamed to have been suckered into a scam. Perhaps you were told over and over that USANA is not a scam because they have been in business since 1992 and are a publicly traded company. Perhaps you are told that it was your own fault you couldn't make any money and that you shouldn't blame others for your failure. These are all very serious statements that the FTC really needs to know about. I have received many emails from people who feel this way. Don't blame yourself. 99% of USANA participants lose money. The compensation is actually designed to fail this many people.

If you know someone who lost money in USANA, encourage them to file a complaint.

Finally, USANA Receives FDA certification for Pharmaceutical Good Manufacturing Practices.

 I have criticized USANA for many years for not seeking certification to back their claim that they adhere to "Pharmaceutical GMP". But after 19 years, USANA finally gets the certification and can now use this fact to bolster their product's manufacturing quality. The certification was done by none other than the United States Food and Drugs Administration. Finally, USANA does something right.

Now if they can fix their compensation plan to eliminate the pyramid scheme in which 99% of associates who joined the business opportunity with the intent to make money actually end up losing money. Those with no intent to make money sign up as preferred customers. All associates are required to continually purchase over $100 worth of product every 28 days in order to participate in the business venture. Those mandatory purchases pay out commission to the upline associates. However, the associate making those purchases receive no commission even if they retail the product. This is why I believe USANA is a pyramid scheme.

The FTC made the following statement regarding pyramid schemes:

"...a multi-level compensation system funded primarily by payments made for the right to participate in the venture is an illegal pyramid scheme." - Staff Advisory Opinion - Pyramid Scheme Analysis

Now one of USANA's very top associates who claims to have made over $4 million as a USANA distributor recently made the following statement when explaining to team members whether they should join as distributors or non-distributors:

"Our recommendation, unless you plan to make a lot of retail sales (which most Associates don’t, because of the USANA PC Program), would be to enroll as a non-Distributor Associate, since you would be charged sales tax on the lower, Wholesale, rather than Retail, prices of taxable items for your location." - Distributor or Non-Distributor Associate - by Pete and Dora Zdanis

So like I have pointed out many times, USANA's distributors cannot retail the product because the preferred customers get it at the same price the distributors do. Here we have a top USANA distributor who has been with the company for 18 years (since the beginning) admitting that most associates don't make a lot of retail sales because of the preferred customer program. USANA has 213,000 ACTIVE associates and 70,000 ACTIVE preferred customers. Since there are 3 associates for every 1 preferred customer, it doesn't take a genius to come to the conclusion that very little marketing of USANA products goes on beyond the associates.

I bring this up to make my point that USANA's commissions are funded primarily by their associates' required 4 week purchases which are made for the right to participate in the venture and be commission eligible. The FTC stated that commissions funded primarily by these required payments is illegal pyramid scheme. I believe USANA can do it legitimately by doing one of two things.

1) Either stop FORCING associates to purchase over $100 worth of products every 4 weeks in order to be commission eligible (you lose any sales points built by preferred customers or downline associates if you fail to make these purchases)

OR

2) Stop paying commission to upline distributors from the FORCED purchases made by their downline distributors in order to fulfill business obligations. The associates are buying product from USANA, not each and every upline distributor above them.

Of Course, USANA will never consider doing either one of my suggestions because it would collapse the pyramid scheme and the company would go out of business in less than 3 months. This is because the only distributors who would continue to make product purchases would be those who actually want to product and not because it is a required business obligation.

So how about it USANA, would you like to make the next step in the right direction?

USANA Allows Their Top Distributors Dictate Which Rules and Foreign Laws are Followed. USANA Sends Three Confusing Letters To Their Chinese Distributors.

It is clear to me who really runs USANA; The top 1% of distributors.

I have received a series of letters from an anonymous source that USANA sent to their Chinese distributors. I believe these letters might shine some light on the recent executive resignations. What transpires in these letters is USANA trying to put an end to the underground recruiting of Chinese Nationals into USANA's business opportunity in Hong Kong. However, when USANA's leaders (top distributors) complain, USANA caves and changes their mind. As a reminder, it is against China's direct selling laws for their citizens to participate in a Multi-Level Marketing scheme. 

USANA has recently admitted to recruiting Chinese Nationals in one of the recent conference calls. However, USANA claimed these citizens from mainland China only signed up to consume the product (even though they joined as DISTRIBUTORS and not Preferred Customers). Here's the transcript & quote:

we have a large group of Asian Associates who are involved with USANA only because of the products and are buying in Hong Kong for consumption only. We expect many of these consumers will begin purchasing USANA products through BabyCare and either remain consumers or become entrepreneurs and build a BabyCare business.

So the following first two letters sent to their Chinese Distributors try to set rules to prevent this illegal recruiting. The third letter tells their Chinese distributors to cancel the effects of the first two letters! The first letter was sent before the 4 executive's resignations. The last two letters came after the resignations.

The letters were sent in English and Chinese together. For the purpose of this blog, I only included the English version. To view the three letters in their Chinese & English form, you can view the following PDF documents: Letter 1, Letter 2, Letter 3.

My Emphasis in Bold Red:

LETTER ONE – Sent May 8, 2011

USANA and BabyCare: 3 Steps to Long-term Success

Dear USANA Family,

The Management Team, Board of Directors, and I all eagerly looked forward to the day that we could announce that BabyCare and USANA would be working together to realize my vision of a world free from pain and suffering. After the indirect acquisition of BabyCare was finalized last year, we were incredibly excited to tell the world that the USANA family now had an opportunity to help even more individuals attain improved health and better wealth. The partnership with BabyCare has brought my vision one step closer to reality by allowing USANA to recommend the finest nutritional products and direct selling opportunity to China in a way that meets all local laws and regulations.

When Dave became aware of BabyCare, he was focused on the prospect of having a license to operate in China and thereby share the USANA products with the People’s Republic of China. After thoroughly reviewing the management, culture, direction, values, products, and performance of BabyCare, he and I came to the realization that we could take an even larger step forward by making BabyCare a part of our family. Today, we are confident that BabyCare is the way for Distributors in China to share in the success of USANA. To realize this ambitious dream, however, we have to complete several steps:

1. Provide the highest quality, science-based products to consumers in China. As I stated during the Asia Pacific Convention, BabyCare’s products are exceptional, and something we can proudly add to the USANA product line. Additionally, we have product approvals underway to expand the variety of USANA products offered in China throughout 2011.

2. Offer an excellent direct selling plan to Distributors in China. As many of you know, a binary multi-level plan is not allowed in China. Yet, USANA remains committed to ensuring that we offer the richest opportunity for everyone, regardless of the market. As such, I had Dr. Fred Cooper evaluate the direct selling plan offered currently by BabyCare to see if he could make any improvements to the commission-earning potential of current and future BabyCare Distributors while adhering to the Direct Sales Regulations in China. After careful consideration, I am pleased to announce that while the Integrated Sales Program (ISP) has remained unchanged, modifications have been made to enrich BabyCare’s current plan. So we encourage all Achievers and above who have not yet received their ISP certification to do so. A meeting for Gold Directors and above will be held in Beijing on May 21 to explain these changes.

3. Ensure full compliance of all market regulations. USANA enjoys a great reputation all over the world where we do business. We want to make sure that in China we have the same reputation with all governing bodies. To secure that reputation—and thus the long-term success of our products and direct selling plan—we must add some changes to the rules for those Distributors doing business in Hong Kong. Therefore, the following changes have been established and are effective for all Distributors:

Beginning May 21, 2011

New enrollment

1. New Hong Kong Distributors will be asked to prove their compliance with our residency requirement by presenting their original Hong Kong Permanent Identity Cards, or Hong Kong Identity Cards, in person. They must also provide a Hong Kong bank account matching the main applicant’s name for enrollment and payment.

Common address

2. A limit of only five (5) Distributorships will be allowed to enroll using any single Hong Kong address for any new enrollments.

Credit card usage

3. Distributors may use their credit cards for purchase on another distributorship only at the time of enrollment. Continual use of a credit card for multiple distributorships is not allowed.

Existing Hong Kong Distributors can continue to purchase products and participate in the USANA compensation plan, but restrictions will apply to those who fail to prove their Hong Kong residency.

Beginning June 4, 2011

Limit on ordering and collection

1. Existing Hong Kong Distributors who have not proven their compliance with Hong Kong residency requirements can only (1) place orders, and (2) pick up products, up to a total of 250 sales volume points in any given rolling four-week period. This includes Autoships, orders placed online, or orders placed over the counter.

Personal pick-up

2. Existing Hong Kong Distributors who have not proven their compliance with Hong Kong residency requirements can only pick up orders in person. They will no longer be allowed to authorize third-party pick-ups, nor can their orders be shipped to a designated address.

Restriction on new Autoships

3. Existing Hong Kong Distributors who have not proven their compliance with Hong Kong residency requirements will not be allowed to initiate a new Autoship.

 

Photo identification

4. All Hong Kong Distributors must produce photo identification when picking up their orders. USANA reserves the right to place a Distributor’s account on hold if he/she refuses to provide photo identification.

I know that change is difficult. We certainly do not want to add unnecessary rules or cause inconvenience to our valued Distributors. However, the above changes are essential if we are to maintain our reputation as a company that stands true to its principles and the rules of the governments around the world where we do business.

On behalf of all of USANA, I want to thank you for all you do to share USANA’s opportunity for true health and true wealth. With these changes, we will embark on a future for USANA that I feel is brighter than ever! To our new prospects and soon-to-be partners through BabyCare, I welcome you on behalf of both USANA and BabyCare to join the healthiest family on earth.

Sincerely,

Dr Myron Wentz

Founder & Chairman, USANA Health Sciences

“直銷商" refers to “distributor” as defined in USANA’s Policies and Procedures. The English version of this communication will govern in case of dispute or confusion due to translation.

For any enquiries, please contact us at our hotline (852) 2162-1812.

It seems very clear to me that this letter is directed towards Chinese Nationals (not to be confused with residents living in Hong Kong) who joined USANA's business opportunity in Hong Kong. The most important line out of "Letter One" was "the above changes are essential if we are to maintain our reputation as a company that stands true to its principles and the rules of the governments around the world where we do business." This line validates my ongoing claims that USANA has been illegally recruiting Chinese Nationals into their Hong Kong territoty and is responsible the explosive growth in Hong Kong. This letter was sent before the Executive Resignations. Now for letter 2.

LETTER TWO – Sent May 11, 2011 (after 4 executives resigned)

A Message From Deborah Woo & Dave Wentz

Dear Distributors,

I am honored to be appointed USANA's President of Asia Pacific.

I understand the responsibility that comes with this position, and promise that I will dedicate myself to helping all our Asia Pacific Distributors in USANA and BabyCare Distributors in China achieve true health and true wealth.

Dave and I received some feedback from leaders on the challenges which some Hong Kong Distributors will face in adhering to the new requirements we announced recently. Therefore, we are pleased to announce the following changes to the requirements which were due to be implemented on June 4:

For Hong Kong Distributors who have not proven their compliance with Hong Kong residency requirements,

(1) The 250-point limit for every rolling four-week period will still apply to order-placing, but no longer to order-pickup

(2) The requirement to pick up orders in person will be rescinded. This means that all Hong Kong Distributors will continue to be able to authorize third-party pick-up, as well as have their orders shipped to a designated address

However, the restrictions on new Distributor enrollment to those with Hong Kong Identity Cards, common address, and credit card usage from May 21, 2011 will remain.

Dave and I will continue to work to improve the BabyCare compensation plan to ensure that both BabyCare and USANA Distributors will enjoy a fair and lucrative way of building their future with the USANA family.

We look forward to working with you.

Deborah Woo

President of Asia Pacific

Dave Wentz

Chief Executive Officer

____________

A Short Summary of the Important Messages (Revised on May 11, 2011)

Beginning May 21, 2011

New enrollment

1. New Hong Kong Distributors will be asked to prove their compliance with our residency requirement by presenting their original Hong Kong Permanent Identity Cards, or Hong Kong Identity Cards, in person. They must also provide a Hong Kong bank account matching the main applicant’s name for enrollment and payment.

Common address

2. A limit of only five (5) Distributorships will be allowed to enroll using any single Hong Kong address for any new enrollments.

Credit card usage

3. Distributors may use their credit cards for purchase on another distributorship only at the time of enrollment. Continual use of a credit card for multiple distributorships is not allowed.

Existing Hong Kong Distributors can continue to purchase products and participate in the USANA compensation plan, but restrictions will apply to those who fail to prove their Hong Kong residency.

Beginning June 4, 2011

Limit on ordering

1. Existing Hong Kong Distributors who have not proven their compliance with Hong Kong residency requirements can only place orders up to a total of 250 sales volume points in any given rolling four-week period. This includes Autoships, orders placed online, or orders placed over the counter.

Restriction on new Autoships

2. Existing Hong Kong Distributors who have not proven their compliance with Hong Kong residency requirements will not be allowed to initiate a new Autoship.

The English version of this communication will govern in case of dispute or confusion due to translation.

For any enquiries, please contact us at our hotline (852) 2162-1812.

So it appears that "leaders" or those distributors who are Gold Directors and up (you know, the special ones who found out 4 executives resigned a day before shareholders found out) are upset with Myron Wentz's plan to ensure they are abiding by foreign laws. Now that Fred Cooper has jumped ship, Deborah Woo and Dave Wentz have begun erasing the necessary rules to abide by China Direct Selling Laws. Lets find out what Letter 3 is all about!

LETTER THREE – Sent May 13, 2011

Dear USANA Family,

It is a new era of growth and opportunity for USANA. Our success as a family relies heavily on our ability to listen and respond to feedback from our leaders and Associates. As a result, we have reassessed previous decisions in regards to Hong Kong policies announced last weekend that were attributed to Dr Wentz. We would like to formally announce that all policy changes that were recommended are being canceled.

There is a bright future for the USANA family through USANA China and BabyCare. We were gratified for the feedback and great suggestions we received from our leaders and those that took time to meet with us in person on how to complete this transition successfully.

Our strategy going forward will be to work with leaders individually to help them transition their teams when they are ready. The leaders have told us they understand the need to transition to China for the long term benefit of their Distributorships, but we want to allow each of them to have the necessary time and training to make this transition smooth and rewarding.

We apologize for the confusion and concern this has created. We remain focused on securing long-term success for you and your business.

Deborah Woo

President of Asia Pacific

Dave Wentz

Chief Executive Officer

Wait a minute! Didn't Myron Wentz's first letter state "the above changes are essential if we are to maintain our reputation as a company that stands true to its principles and the rules of the governments around the world where we do business." So because USANA's top distributors complain, USANA decides to scrap the rules for Chinese Nationals?

From the evidence I have seen, USANA has knowingly allowed citizens of mainland China to join USANA's Hong Kong territory for several years. They even admit that a LARGE SUM of USANA product ends up in mainland China (long before they even owned Babycare Ltd) as stated in this internal memo. They finally admit it in a recent conference call. And these three letters add to the evidence that USANA is fully aware of the restrictions mainland China has on their citizens joining a Multi-Level Marketing scheme, even if they cross the border and join in Hong Kong. 

How much longer will USANA get away with this? Shareholders should be demanding answers from USANA. Questions USANA should answer to shareholders are:

1) How many total mainland Chinese citizens joined USANA's business opportunity in Hong Kong?

2) How much of USANA's revenues came from the underground recruitment of Chinese Nationals into their Hong Kong territory over the past several years?

3) How much commission is paid to USANA "Leaders" (Gold Distributors and up) that came as a result of these Chinese Nationals who joined USANA's business opportunity in violation of China's Direct Selling Laws?