The Wall Street Journal-20080111-SEC Ends Investigation of Usana Without Acting- but Lawsuits Loom
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SEC Ends Investigation of Usana Without Acting, but Lawsuits Loom
The Securities and Exchange Commission ended an investigation of Usana Health Sciences Inc. without taking action, people familiar with the matter said.
The SEC's decision, disclosed yesterday in a letter to a Usana attorney, marks a victory for the Salt Lake City-based vitamin maker, whose share price has been pummeled over the past year over allegations of fraud, the resignation of its auditors and revelations that the company inflated the credentials of an executive, a director and a prominent adviser. The company still faces lawsuits by some former distributors and shareholders.
The "investigation has been completed," the letter from the SEC's Salt Lake City office said, adding, "we do not intend to recommend any enforcement action by the Commission."
Usana had been under scrutiny from the SEC since March, after a San Diego investigator, Barry Minkow, sent the agency a 500-page report accusing Usana of fraud. The company has denied the accusation.
Since then, Usana's market value has fallen 46% to $574 million. The company's shares are among the most bet-against in America, according to figures that track activity by short-sellers, or traders who sell borrowed shares in the hopes their price will fall.
In 4 p.m. trading on the Nasdaq Stock Market, Usana shares rose 90 cents, or 2.6%, to $35.57 each.
Usana sells vitamins, nutrition bars and skin-care products to a network of 180,000 at-home distributors who receive commissions on purchases by those they recruit into the network. Few distributors earn a profit, according to internal figures.
The company faces a lawsuit in a California court from former distributors who accuse it of running a pyramid scheme, a fraud that works like a chain letter, where each distributor must recruit others in order to make money.
The company says its distributors use commissions principally to defray the cost of vitamins they buy for themselves, not to earn a profit.
Mr. Minkow, who served time in prison in the 1990s for securities fraud, has won praise from the Federal Bureau of Investigation for exposing numerous frauds after his release.
