The complaint alleges violations of the federal securities laws, including Section 10(b) of the Securities Exchange Act of 1934. USANA is a health sciences company engaged in the manufacture and sale of nutritional and personal care products headquartered in Salt Lake City, Utah.
Specifically, the Complaint alleges that, throughout the Class Period, defendants issued materially false and misleading statements regarding the Company's business and financial results and failed to disclose, among other things, that: (1) the Company's multi-level marketing system was operating as a pyramid scheme; (2) the majority of the Company's Associates did not sell to consumers, but sold to other Associates; (3) the Company was experiencing an exceedingly high Associate attrition rate, resulting in an unsustainable sales force; (4) 74% of the Company's new Associates were failing within the first year; and (5) 87% of the Company's Associates were losing money. The Complaint further alleges that, as a result of these false statements and omissions, USANA common stock traded at artificially inflated or distorted prices. On March 15, 2007, the Fraud Discovery Institute issued a press release and The Wall Street Journal published an article concerning a three-year investigation by the Fraud Discovery Institute that had revealed that USANA's multi-level marketing system was an unsustainable pyramid scheme. In reaction to this news, the price of the Company's stock declined $8.92 per share, or 15%, to close on March 15, 2007 at $49.85 per share, on unusually heavy trading volume.
According to an article dated November 15, 2007, on October 17, 2007, the U.S. District Court for the District of Utah appointed the shareholder with the largest financial interest as the lead plaintiff in a securities fraud case, finding that the shareholder was presumed to be the most adequate plaintiff despite an institutional investor's competing motion for appointment as lead plaintiff. … Three class members, including Irina Sech, the Steamfitters Local 449 Pension Fund and Marvin Mullholland, moved for appointment as lead plaintiff. Mullholland withdrew his motion. … The district court found that Sech had the largest financial interest and was presumed to be the most adequate plaintiff.
On December 3, 2007, the lead plaintiff filed an Amended Consolidated Class Action Complaint, and the defendants responded by filing a Motion to Dismiss the Claims Asserted in the Amended Consolidated Class Action Complaint. Before any ruling on the motion, on April 18, 2008, the plaintiff filed a Second Amended Consolidated Class Action Complaint, amending the class period. The defendants again responded by filing a motion to dismiss.
A press release dated July 24, 2008 announced that USANA Health Sciences, Inc. (NASDAQ: USNA) the United States District Judge Dale Kimball has dismissed with prejudice the shareholder class action suit filed in March of 2007 against the company and certain of its officers and directors. The judge ruled that the plaintiffs failed to assert any actionable securities laws claims against USANA. "We are pleased that the court ruled in our favor on this motion to dismiss," said Dave Wentz, chief executive officer, USANA Health Sciences, Inc. "This was a case we believed from the beginning had no foundation and we will now be able to move forward without further distraction or expense."