As stocks plunge, Usana sues Minkow over report
He's scheming to reap $$ from lower share prices, health firm says
In a complaint filed Thursday in U.S. District Court in Salt Lake City, Usana charges that Minkow authored and published a report "calculated to defame Usana and lower its stock price, so as to allow Minkow to benefit from his short position in Usana's publicly-traded stock."
Minkow distributed a 500-page report to officials at the U.S. Securities and Exchange Commission, the Federal Bureau of Investigation and the Internal Revenue Service.
The Wall Street Journal picked up the story, running it Thursday on the cover of its Money & Investing section.
That helped to fuel a sell-off of Usana's shares, which closed down $8.92 at $49.85 Thursday on the Nasdaq Stock Market. On Friday, Usana shares lost another 60 cents, or 1.2 percent, to $49.25.
"Minkow is simply looking to line his pockets based upon a hodgepodge of misinformation, half-truths and outright lies," said D.J. Poyfair, an attorney for Usana. "Usana is regularly identified as the gold standard in network marketing by state and federal regulators."
Usana issued a statement Friday saying that Minkow's campaign was financed by a paying client and Minkow will profit personally.
Minkow charges that Usana's senior management and directors exercised $95 million in stock options even as the company authorized $140 million in stock repurchases.
"None of that is illegal," Minkow said. "But where did they get the $140 million? From the people that they lied to and told that they were going to succeed in this multi-level marketing business. That's wrong. That's evil."
Minkow alleges that 85 percent of current Usana distributors are losing money and 74 percent of distributors fail within the first year.
"These distributors account for 86 percent of the company's multi-level marketing revenue," Minkow said. "In today's Internet economy, there is simply no need for multi-level marketing or the overpriced products that they sell, meaning that the only thing they are selling are memberships in anticipation that future memberships will be sold in the future, which is the classic definition of a pyramid scheme."
Usana says that nearly 80,000 people have signed up to be so-called "preferred" customers and do not participate as business associates.
"Usana business associates are under no obligation to purchase any amount of products beyond a $20 starter kit," the company said in a statement. "Usana's business model is dependent on consumption of its nutritional products, not the recruitment of associates."
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