Shareholder sues Usana Health Sciences

A new lawsuit against Usana Health Sciences Inc. alleges that several directors and executives breached their fiduciary duties and collected more than $24 million in insider trading of the company's common stock by misrepresenting the company's activities.

The suit against the Salt Lake-based company, filed this week in 3rd District Court by shareholder Robert Keith Larson, names as defendants the company founder, chairman and chief executive officer, Myron W. Wentz, and several directors and executives.

The suit claims that from July 1, 2006, to the present, the defendants "repeatedly caused Usana to represent itself as a highly successful company with a history of solid earnings and as having a successful business model." It cites what it calls false and misleading comments from several press releases and reports to the Securities and Exchange Commission.

But, the suit claims, Usana's business model was unsustainable because it required constant recruitment of new associates due to heavy attrition within the company's sales force and that its multilevel marketing model operated as a pyramid scheme.

Among the allegations are that more than 74 percent of the company's associates were failing within the first year of joining the company and more than 87 percent of associates were losing money instead of receiving compensation for their sales efforts.

The suit claims that the Fraud Discovery Institute and The Wall Street Journal revealed the company was perpetrating the pyramid scheme to sell its products and, when combined with a Forbes.com expose, caused the company's stock price to slip from $61.50 to $29.48 in six months.

Yet trading by the defendants from July 1, 2006, to the present yielded proceeds of more than $24.1 million "based on their knowledge of materials, adverse, nonpublic information," according to the suit.

The suit seeks a judgment against the defendants and in favor of the company for unspecified damages, the imposition of a trust for the company for the amount of proceeds from the defendants' stock sales, and an order forcing the defendants to turn over to the company the sale proceeds.

The company also has been criticized by Barry Minkow, a San Diego investigator who started the Fraud Discovery Institute. His reports have results in several lawsuits against Usana by independent distributors.