A newly filed lawsuit alleges Salt Lake City-based USANA Health Sciences executives were operating an illegal pyramid scheme that misled investors into thinking it was a trustworthy business model, while making off with millions of dollars by selling company stock at artificially inflated prices.
The proposed class action lawsuit was filed in Utah’s federal court. The suit seeks to recover stock market losses in conjunction to claims outlined by a private investigator and detailed recently in the Wall Street Journal. The investigation, who has served time for stock fraud, directs the Fraud Discovery Institute. His report is quoted in detail, in the lawsuit.
USANA requires constant recruiting of new distributors, noting the pool will eventually dry up. It would evaporate sooner if potential distributors knew about failure and collapse rates. According to the investigator 85 percent of current USANA distributors are losing money while 74 percent of distributors fail the first year. Only 3 percent of distributors receive 70 percent of the compensation.
The lawsuit contends this information was not disclosed to the investors and they were purposely misled as a result.
Company documents cited in the investor suit show 86 percent of revenue comes from sales to associates. And, as of the end of 2005, only 37 percent of USANA associates had ever earned a commission, the suit alleges.
According to the investor suit, insiders sold off more than 95 million shares in exercised options between 2003 and 2006; Fuller sold 33,700 shares in October 2006, for $1.54 million; in July and August, CEO David Wentz sold 15,000 shares for $664,300; and last month company founder Myron Wentz sold 85,000 for $5.18 million.
Comments for this article are closed.