Archive for April, 2007
Mon 30 April 07 · Filed under Fraud News Stories
This is hilarious. Roy Pearson, a ?Washington D.C. administrative law judge sued a dry cleaner because they lost his pants. And he wants $65,462,500. He says he’s entitled to that $65 million because he’s had? .mental suffering, inconvenience and discomfort..
Wow. We’ve all had a favorite pair of pants. But if mine were lost, I don’t think I’d have $65 million worth of anguish over it.
Pearson dropped off a pair of pants in 2005 to have them altered. When he came back to pick them up, he was presented with the wrong pair of pants. (Pearson is also upset because the pants weren’t done on the same day he dropped them off, and he says the “Same Day Service” sign on the wall is therefore fraudulent.)
Pearson demanded $1,150 from the drycleaners to buy a new suit, and later the owners offered him $3,000, then $4,600, then $12,000 to settle. Instead Pearson wants $65 million based upon a consumer protection law that specifies damages of $1,500 per violation per day.
Even funnier is the idea that the drycleaner should pay for Pearson to rent a car. Yes, that’s what he’s saying. You see, the drycleaner he’s suing is in his neighborhood. Now Pearson can’t go there and has to rent a car every weekend to drive to a different drycleaner. He says that’s worth $15,000.
Mon 30 April 07 · Filed under Fraud News Stories
A full-page ad in the Wall Street Journal, Chicago Tribune, and Washington Post by the U.S. Chamber Institute for Legal Reform (a pro-business group) suggests that lawsuit abuse costs the average American family $3,520.
That is the alleged increase in cost of goods ad services due to these lawsuits. This figure was determined by Tillinghast (part of consulting firm Towers Perrin) after an analysis of A.M Best insurance data. Critics say this study included all lawsuits, and not just the ones that may have been fivilous, so it’s an unfair figure
Sun 29 April 07 · Filed under Fraud News Stories
Based upon the quality (or lack thereof) of this week’s submissions, it seems this is a good time to tell everyone what the Carnival of Fraud is all about…
- The Carnival of Fraud is part of the Blog Carnival site. The key word there is BLOG. The Carnival of Fraud is for blog posts, not other miscellaneous websites.
- The Carnival of Fraud is about FRAUD. (Hence the word “fraud” prominently in the title.) Your ramblings about business in general aren’t going to be part of the Carnival of Fraud.
- The Carnival of Fraud is for legitimate blogs, not cheeky little attempts at getting Google ad revenue.
The one decent submission for this week (thank you, Mary Beth) will be held over until next week’s carnival, when I hope our submissions revert back to their previous high quality.
Fri 27 April 07 · Filed under Scam Busting
Forensic CPA And Certified Fraud Examiner Tracy Coenen Challenges Usana Executives On Distributor Loss Comments And Affirms FDI Findings In Newly Released Report
SAN DIEGO–The Fraud Discovery Institute (FDI) today released on its website a new report that challenges claims by Usana Health Sciences, Inc and confirms previous findings released by FDI.
Last week, during Usana.s April 18th earnings call, President Dave Wentz stated in response to claims by senior citizens Jane and JC Bishop of losses of $5,000 as Usana distributors that such a loss could occur only if they .bought $5,000 worth of product and threw it in the garbage can..
Wentz.s claims are clearly not the case according to a new report by Forensic CPA and Certified Fraud Examiner Tracy Coenen. The reports identifies Wentz.s statement as a clear misrepresentation that is yet another in a .growing list of deceptions. by Usana. Ms. Coenen cites multiple examples of how distributors suffer material loss when they purchase non-refundable .tools. (tapes, videos, DVDs, selling aids etc.), give away products, and lose profits from selling products at cost, at a discount, or at less than wholesale cost.. According to Ms. Coenen.s report, the fact that none of these costs are recoverable makes Wentz.s statement during the April 18th earnings call .absolutely false.. Read the rest of this entry »
Fri 27 April 07 · Filed under Scam Busting
Today another class action suit was filed against Usana Health Sciences today, with a class period of July 18, 2006 to March 14, 2007.
The twist:
?The lawsuit was filed in the United States District Court for the District of Utah. Based on recent additional allegations of wrongdoing at USANA it is possible that the Class Period may be extended to include persons who purchased USANA stock after March 14, 2007.
What’s next?
Fri 27 April 07 · Filed under Scam Busting
An alleged Usana employee has suggested that Usana did not have the 153,000 “active” associates that it claimed in its December 31, 2006 10-K. I hope the SEC asks for proof of this number.
Fri 27 April 07 · Filed under Pyramid Schemes & MLM
I issued a report to Fraud Discovery Institute about many of the financial issues raised in the Usana Health Sciences matter. The report clarifies the issues and why they’re important from an accounting perspective, specifically regarding Generally Accepted Accounting Principles (GAAP), materiality, and disclosures.
A few of the high points of my report include:
- Dave Wentz, President of Usana, said in last week’s conference call that the only way a Usana distributor loses money is if she purchased products “…and threw it in the garbage can, in which case I guess you would call it a loss, or they could have I guess sold it at much less.. That statement is false.
- 14% of Usana’s sales come from Preferred Customers, showing that even Usana itself is not able to build a significant retail business
- Usana’s Preferred Customers are buying less than 6 HealthPak 100s per year. They’re not even taking a full year’s worth of products!
- Usana’s Associates are buying 19 HealthPak 100s per year, meaning they’re each taking a year’s supply and they have 1/2 year’s supply left to sell or give to someone else. Not really evidence of significant retailing, is it?
- The company boasts about its low rate of product returns from Associates, suggesting that this says they distributors are happy. That’s the wrong conclusion. And distributors can and do lose money with Usana; above and beyond the products, they’ve got expenses such as tools (which they will never get refunded).
- Usana’s “average earnings” information constitutes and incomplete and misleading disclosure.
- Usana President Dave Wentz says that most distributors just want their Usana experience to pay for their vitamins; they’re not really in it for a profit. Yet 87% of distributors don’t make enough to pay for their vitamins. Talk about failure of the system!
- Distributors have only a 1 in 3 chance of earning one cent of Usana commissions.
- Usana supporters say that the falsified credentials of Denis Waitley and Tim Wood, along with the fact that found Myron Wentz renounced his U.S. citizenship and parked his Usana stock in Lichtenstein, are minor in and of themselves, and therefore of no consequence. I submit that they are of consequence, as they demonstrate a pattern of deception by Usana executives. That in and of itself is material. Period.
- Gil Fuller, CFO of Usana stated on the most recent earnings call that only 12% of Usana Associates want to make money, and only about half of those actually try to make money. This is in stark contrast with everything else published by the company, including recruiting literature.
- If 88% of Usana distributors are .in it. for the vitamins, then why don.t the Preferred Customer numbers bear this out? The Preferred Customer program is available for those who just want to buy vitamins at a discount off suggested retail, and not build a business. Yet Usana.s figures show that only 33% of the company.s representatives are Preferred Customers.
- Usana’s disclosures about “high” Associate turnover are indequate. They must disclose material items under GAAP, and knowing the exact figures regarding turnover is a material point.
- The total number of distributors active with the company at any time during the year is a material point as well, as it would influence the judgement of a user of the financial statements. As such, Usana is required to make this disclosure of material information, but does not.
I challenge the Securities and Exchange Commission (SEC) to ask the following questions, and I challenge Usana to answer them truthfully:
1. How much do distributors spend on .tools. purchased from Usana, other distributors, Usana insiders, or other parties?
2. How many Associates and Preferred Customers were in Usana at any time during the years 2004, 2005, and 2006?
3. How does Usana calculate .average. associates?
4. On average, how long is an Associate and a Preferred Customer .in. Usana? (Let.s define .in. as the time from sign-up until the last purchase of products.)
5. Since we know that averages can be misleading, please break down the numbers for us. Show us how many Associates in 2006 were .in. the company for one month, two months, three months, six months, nine months, one year, 18 months, 2 years, 3 years, 4 years, 5 years, more than 5 years.
6. While we.re at it, please also disclose the commissions paid to the Associates at each of those milestones.
7. What was the average commission paid to distributors in 2004, 2005, and 2006 based upon all Associates active during the year?
8. Please provide the data supporting the assertion that only 12% of Associates want to build businesses, and that only about half of those put forth much effort.
9. What is the annual associate turnover rate?
Fri 27 April 07 · Filed under Fraud Detection & Prevention
Marilee Jones, the dean of admissions for Massachusetts Institute of Technology, has resigned after it was discovered that she falsified her credentials. She claimed on her 1979 application to MIT that she had a bachelor’s and master’s degree from Rensselaer Polytechnic Institute, when she really only attended one year of part-time schooling there.? Jones also did not have a degree she claimed to have from Albany Medical College.
Jones was originally hired with the false credentials in 1979 for a “junior” position in the admissions office. She was promoted to dean in 1997 and says she “did not have the courage to correct my r?sum?.” She co-wrote a book in 2006 called “Less Stress, More Success: A New Approach to Guiding Your Teen Through College Admissions and Beyond.” Jones also sat on several higher education boards.
The situation came to light when an anonymous tipster sparked an internal investigation. Jones says she is “deeply sorry for this and for disappointing so many in the MIT community and beyond who supported me, believed in me, and who have given me extraordinary opportunities.”
Fri 27 April 07 · Filed under Fraud News Stories
Four defendants pleaded guilty to selling millions of dollars worth of fake Rockwell Automation software. The counterfeit software was sold on eBay, and had a retail value of $19 million. Each defendant faces five years in prison and a fine of $250,000. There have now been seven felony convictions for seling counterfeit Rockwell software.
Wed 25 April 07 · Filed under Fraud News Stories
A proposed amendment to make the internal controls portion of Sarbanes-Oxley optional for smaller corporations was defeated in the U.S. Senate this week. Specifically, the change would have allowed companies with market value less than $700 million to opt out of complying with Section 404 of SarbOx.
Sarbanes-Oxely has been criticized as too expensive relative to the benefits achieved.? Supporters of the law say that corporate fraud has been reduced (although that has not necessarily been proven). The SEC and PCAOB (Public Company Accounting Oversigt Board) are currently working to make some changes to Sarbanes Oxley.
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