MINKOW ACCUSES USANA OF ILLEGAL SALES IN CHINA
Stock swindler-turned-fraud fighter Barry Minkow is once again gunning for nutritional supplement maker Usana Corp.
Minkow, the colorful ex-convict who makes up for his swindles in the 1980s by uncovering corporate scams, is accusing Usana of increasing its revenues by illegally selling products in China.
Minkow and the Salt Lake City-based company have been locked in legal combat since Minkow’s Fraud Discovery Institute released a 500-page report in May that alleged the company was a pyramid scheme. Shortly after, Usana, which denies the allegation, sued Minkow for libel.
Minkow now claims to have hired three separate teams of investigators to pry into whether Usana’s Hong Kong-based employees are doing business illegally in China.
Since 2005, China has had very strict laws against multilevel marketing operations on the mainland. Usana, in its most recent annual report, said any entrance into the Chinese market would “require [Usana] to adjust our compensation and selling model.”
However, Hong Kong, which is controlled by China but has separate rules governing its economy, is Usana’s fastest-growing market, with sales growing at an 81 percent clip between the second quarters of 2005 and 2006, according to the company’s filings.
Minkow claims his investigators spoke to several Hong Kong-based Usana employees who discussed how they tell Chinese citizens interested in distributing the product that the first step to getting around the rules is to obtain an account at China Merchant Bank.
Minkow claims to have transcripts of phone calls between an investigator and another Hong Kong-based Usana employee, who also emphasized the importance of having an account at China Merchant Bank to set up Chinese distribution lines “[because] we will not send a check.”
The same employee also allegedly said, in response to a question about whether being from China was a barrier to doing business, “No, many distributors are from China, too” and added that Usana had 30,000 distributors on the mainland.
An Usana spokesman said, “There is no merit to any allegations that there is a conspiracy to enter the Chinese market. Claims that Usana is willfully attempting to side-step its own strict rules to break Chinese law is slander, and is typical of what we have seen in the past from convicted felon Barry Minkow.”
The spokesman said Usana has “zero tolerance for unethical behavior among the sales force” and that the company and its executives “instituted a strict compliance program to regulate all business activity, including adherence to all local market laws and regulations.”