The Securities and Exchange Commission concluded during the first quarter USANA’s marketing model is not a pyramid scheme, but the stock has a short interest about 34 percent, meaning many investors are betting the stock will fall.

The SEC did not say that Usana is “not a pyramid scheme.” Nothing could be further from the truth, although company management would like you to believe that this is what the SEC said.

What really happened: The SEC closed its informal investigation of Usana without giving any reasons why. The SEC chose not to take the informal investigation to the next level and make it formal.

That’s the end of the story. What the SEC did was not any sort of endorsement of the company, and it doesn’t necessarily mean that the company is in the clear. It just means that the SEC decided not to continue investigating.

This type of irresponsible reporting really angers me. It is one of the reasons why pyramid schemes like Usana, Herbalife, Mary Kay, Pre-Paid Legal, and Primerica Financial Services continue to recruit new marks. They see statements like this by the Associated Press, and assume that they’re accurate.

Kuhnke and her aunt both received citations for giving tobacco to a minor.

The buyout would be made through Unity Acquisition Corp, an entity controlled by Gull Holdings. Gull Holdings is owned by Myron Wentz, and that entity (along with the “other participants” in the buyout) owns 68% of Usana currently.

Experts speculated that the company might be taken private in order to prevent future scrutiny by the Securities and Exchange Commission. Indeed, the company says that going private will give them “significant cost savings.”

I know you didn’t “get my name from someone while networking.” That lie is old. Quit using it. I know you found me in a CPA directory or on the internet. When you lie, I hate you even more. So can we stop the charade?

What must I do to get headhunters to quit contacting me? Any suggestions are deeply appreciated.

Answer: No. That was one of the signs that a fraud was occurring. In spite of financial statements that showed increasing revenue and profits, the company was constantly in a poor cash position. This is one common red flag of fraud discussed in my book, Essentials of Corporate Fraud.

Last December, Father Leonard Van Vlaenderen was arrested and charged with misdemeanor cocaine possession. He has pleaded no contest to the charge and will be sentenced this month. He was put on leave from the church, and three parishoners began examining the church’s books.

That group has now asked that an official forensic accounting investigation be completed, and the church is overpaying Virchow Krause to do the work. The investigation will go back to at least 2000 in order to provide a solid comparison of numbers and evaluate the current numbers.

Apparently, it has been noted that cash collections were down, but it is possible that it is due to tax code changes (which do not allow a deduction for cash donations without a receipt) and a change in the Mass schedule. This issue was made known to the church’s 8,500 members because it was the right thing to do, but Father Paul Hartmann has asked that they not speculate yet whether or not a fraud has actually occurred.

My next installment of The Fraud Files, a column I write for the Wisconsin Law Journal, discusses the issue of financial fraud at churches and what can be done about it. I’ll post here as soon as it runs.

Welcome to the May 12, 2008 edition of carnival of fraud.

Tracy Coenen presents Mary Kay Cosmetics suing little company for daring to make money off Pink posted at The Fraud Files Blog, saying “Mary Kay Inc. is trying to shut down a small company that helps consultants get rid of excess inventory. Nice.”

Wenchypoo presents Three Little Words Limit Severe Consequences posted at Wisdom From Wenchypoo’s Mental Wastebasket.

Leon Gettler presents PCAOB targets mortgage securities posted at Sox First, saying, “Here’s a warning to all audit firms and subprime fraudsters: the Public Company Accounting Oversight Board has signalled that it will target securitized mortgage loans and collateralized debt offerings when it inspects 2007 annual reports.”

Michael Bass presents Why Americans Can’t Escape Gasoline posted at Debt Prison, saying, “Certainly our economy and way of life depends on our ability to go wherever we want, whenever we want. However, with all the technology on display today, our addiction to gasoline is a reflection of greed - not a lack of technological know how.”

Wilfrid presents State of the Identity Theft Industry - Protect Yourself posted at Your Finish Rich Plan.

Trevor McKay presents Does Anniuty Fraud Exist? posted at The Annuity Professor.

Raymond presents Nigerian 419 Scams and Spam Emails Are Funny But They Make Me Paranoid posted at Money Blue Book.

Raymond presents Always Pay By Credit Card To Protect Against Airline Bankruptcy Loss posted at Money Blue Book.

Alexander presents Debit Card Fraud: How to Prevent It posted at Wealth Junkies.

The Whited Sepulchre presents I Can’t Believe People Still Fall For This posted at The Whited Sepulchre, saying, “here’s the latest variation on a scam that’s been around ever since the invention of the checking account.”

That concludes this edition. Submit your blog article to the next edition of carnival of fraud using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

Technorati tags: carnival of fraud, blog carnival.

Still writing a lot for AOL but having a good time doing it!

Win some spending money at Comic Wonder - A very cool site started by local serial entrepreneurs.

And you think YOUR kids are expensive? - The Duggars are at it again. Child #18 on the way.

What would a gas tax holiday really do for consumers? - Temporarily lowering the federal gas tax won’t really help consumers.

Click here to protect your computer - Have you gotten one of those crazy pops telling you your computer is infected and you MUST click here? Don’t do it!

Consumer Complaints: None at Home Depot! - Home Depot has been very good to me!

Letting prisoners out early to save money is not the answer - Don’t open the prison doors. Find another way to spend less money.

More cheap prescription drugs coming to Wal-Mart - Thanks to Wal-Mart, you’ll pay less for your prescriptions at Target and other stores!

Traditional real estate agent services going out of style? - Why pay 6% to a broker when you can spend far less to sell your house?

But Mary Kay wants to stop the whole thing! Details on my consumer awareness site, Pink Truth.

According to an unsolicited written statement from Mr. Hollander to the Fraud Discovery Institute, he became suspicious of what appeared to be a common practice of supervisors living in Venezuela but changing their addresses of record to Columbia or Panama to avoid the currency controls imposed by the Venezuelan government. The supervisors changed their addresses on file with Herbalife in Los Angeles while still living in Venezuela in order to be paid in currencies more freely traded than the Venezuelan Bolivar.

This practice is a violation of both Venezuelan law and the Herbalife ethics policy, and Mr. Hollander states that after several months of observation he finally brought these acts to the attention of his superiors at Herbalife. To Hollander’s utter surprise, he was immediately and without cause fired. Mr. Hollander immediately wrote a letter to the Herbalife human resource department explaining his attempts to adhere to the code of ethics, and he was shrugged off with a response that the company would not put anything in writing regarding his employment.

Fraud Discovery Institute’s Co-founder Barry Minkow said, “The motive and potential for fraud are clear: As Herbalife struggles to recruit new distributors in established markets such as the United States and Europe, countries like Venezuela are targeted for growth to make up the difference. In the most recent quarter, U.S. recruitment of new supervisors showed no growth compared to 2007, while just a year earlier there was 18 percent growth in the U.S.  Herbalife’s new supervisor figures for Europe showed a drop of almost 15 percent in the most recent quarter when compared to 2007, and a year earlier they were down 16 percent.

“At the same time, South America grew new supervisor numbers 40 percent, including the triple-digit increase in Venezuela alone. This is an easy sale for Herbalife supervisors in Venezuela to their fellow residents,” said Minkow.  “Start up a business where you can get your hands on desirable U.S. dollars via the Herbalife residency money laundering scam - funneling profits outside the scope of the Venezuelan government by making it appear like you live in Columbia or Panama while never leaving the country of Venezuela.”

According to Minkow, there is no guess work in why Herbalife continues to target these areas as the ease of cheating is apparent, and the goal of increasing new supervisors is met at the cost of violating any rule or law.  Mr. Hollander also states the problem has only increased since he has left and even provides an audit trail for the outside auditors to corroborate his money laundering claims.

As evidenced by Herbalife’s press release when Mr. Hollander was hired also on the FDI web site (’http://www.frauddiscovery.net’), when a highly qualified employee is fired rather than the illegal behavior corrected, the company appears to be aiding and abetting these illegal activities. Said Minkow, “Instead of stopping the rogue supervisors, Herbalife trumpets the financial results achieved through the cheating of these supervisors because new supervisor growth is the key metric for Wall Street analysts when valuating the company stock price which Herbalife insiders cannot sell fast enough while simultaneously repurchasing shares through leveraged, borrowed money on the company balance sheet.”

Mr. Hollander also had much to say about the often touted Herbalife Nutrition Clubs which he states regularly skirt local regulations regarding restaurant inspections and permits even though they serve Herbalife shakes. According to Mr. Hollander, by portraying these establishments as social clubs that just happen to give free shakes to people who have paid for memberships, they have successfully so far avoided government regulation of businesses serving food.

“Every time we turn around, Herbalife finds a new way to cheat and get around the laws and regulations intended to protect consumers,” added Minkow. “The company cheats in China to skirt the strict multi-level laws there, cheats in Venezuela to facilitate triple-digit growth rates for new supervisors in a sophisticated residency foreign currency scam, and had a president who cheated on his resume. The only two remaining questions are: Which country will be the next, and, When do the auditors and Wall Street start to consider the cumulative effect of these lies?”

“If Herbalife will not take a stand and enforce its own code of ethics which prohibits illegal behavior, we must ask that Venezuelan law enforcement officials act to stop the fraud,” concluded Minkow. “To that end, the Fraud Discovery Institute has asked the government of Venezuela to immediately shut down Herbalife operations in that country.”