Creating a Criminal Conspiracy out of Your Own Customers

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… and thousands of pages of proof. 

Today after the close USANA (NASDAQ:USNA) will report earnings. 

In today’s report, Citron documents how the company is creating a criminal conspiracy involving tens of thousands of its own customers, in its largest growth market.  But instead of the customary doubletalk and bafflegab – Answer this on your conference call.

USANA is knowingly violating multiple Chinese laws:

·       It is illegally importing and selling unapproved products in Chinese mainland via an extensive multi-level marketing  network – in gross violation of Chinese strict anti-pyramid scheme law. 

·       It is not legal to sell unapproved and improperly labeled digestibles in China, which is an especially sore spot with the Chinese government. 

·       And it is moving these goods into China with disregard to both import duties and VAT taxes, using its tens of thousands of “associates” from the Mainland as its “mules”.

After 4 months of investigation and with thousands of pages of support documentation, we feel confident in claiming that USANA is running a criminal enterprise in China.  As Glaxo squirms under the scrutiny of Chinese regulators, It is Citron's opinion that USNA is far more vulnerable.  We will stand by this opinion in a court of law.

For the full story:  

Click Here

(Citron always recommends you download the PDF and read it locally and follow the links for documentation.) 

 

Stay Tuned for Upcoming Citron Expose

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Citron White Bkgd

In December of 2012, and January 2013, Citron exposed the vulnerability of Intuitive Surgical to a growing swarm of business concerns surrounding its very aggressive marketing of its sole product, its Da Vinci robot.   

Goldman Sachs responded with a huge target raise, Morgan called it a “tempest in a teapot”, and every analyst in the name defended it.  Now it’s six months later, and in the face of one of the hottest markets in history, Intuitive has warned, missed, reduced guidance, and traded down 40% from its highs.  Although we are normally not ones to take a victory lap, the lesson learned is: "It’s not a problem … until it is a problem". 

This lesson has been learned this week by Glaxo as they run afoul of Chinese Regulators on corruption charges.

At the present moment, Glaxo’s problems in China are a top business story.  Several company employees have been arrested, while at least 10 company executives are under “house arrest”, with regard to allegations of corruption and bribes.  

Tomorrow, after more than five months of deep investigation, Citron will release a story about another US-based company (over a billion in market cap) doing large-scale  business in China, that makes Glaxo look like a band of angels by comparison.  This company is knowingly violating numerous laws in the PRC, some of which the country takes extremely seriously; and hoping Wall Street doesn’t notice.  As usual, Citron backs up its findings with irrefutable hard evidence.  

Citron will demand full accountability, and will encourage the street to take full note of the severe business risks this company's illegal behavior has exposed it to. 

 

A Chain is Only as Strong as its Weakest Link: Citron comments on Interoil after a 7 year hiatus.

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The Interoil story that has gone widely unnoticed — Why John Paulson might get fleas

While investors might be cheering or relieved to see news that Interoil has found a new CEO, Citron believes that investors might be looking at the wrong piece of news.

For those of you short selling history buffs, you might remember that Citron was the first to write about Interoil (NYSE:IOC), documenting its questionable cast of characters and lack of reserves… back in 2005.  It has been 8.5 years since we titled the headline on our story

“If you wish to be a success in the world, promise everything, deliver nothing.”

— Napoleon Bonaparte

http://www.citronresearch.com/stocklemon-reports-interoil-corp/

At the time, the stock was trading within 10% of its current price. 

More notably at the end of 2006 we warned investors:

“While unchanged in its belief that the gas IOC discovered is unlikely to be monetized ever, we acknowledge the credibility of the story opens the door for IOC to raise new desperately needed equity to keep itself in the game for a long time. Any short term catalyst for the stock to go lower has seemed to disappear.”

We will not take this time to rehash the bear case which has been told ad naseum in most every media outlet in the world.  Instead we want to focus on one coincidence that has gone widely unnoticed – which could indeed be the weak link that causes the entire Interoil story to unravel.

One of the most impressive aspects of the Interoil promotion is their constant ability to attract “brand name” shareholders who have rotated over the past 9 years.  Their current “brand name” holders are none other than John Paulson and Richard Chandler, who beyond their riches and prior successes, were both holding the bag in the Sino-Forest debacle.

The story that Citron wants shareholders to focus on now is that of the involvement of John Thomas Financial and Tommy Belesis in Interoil.

Citron White Bkgd  Hero or Pond Scum?  You Decide.   
(Click to view the last 30 seconds of this classic for a  prophetic moment)

In 2009, Interoil was facing a precarious situation.  They needed their stock price to close above $32.50 for fifteen days to force a conversion of debt to equity. 

The CEO of John Thomas Financial was none other than the colorful Tommy Belesis who was able to transform himself into a Hollywood bit-part actor, while transforming Interoil from a stock promotion into a sub-plot of the movie “Wall Street 2:  Money Never Sleeps”.

But the plot has now gone sour.  On March 22, 2013, Belesis was charged with fraud by the SEC:

http://www.sec.gov/news/press/2013/2013-46.htm

http://www.bloomberg.com/news/2013-03-22/hedge-fund-manager-said-by-sec-to-steer-bloated-fee-to-belesis.html

April 15, 2013, three weeks later in a completely unrelated matter, Belesis was charged with fraud by FNRA.

http://www.bloomberg.com/news/2013-04-15/john-thomas-s-ceo-accused-by-finra-of-fraud-broker-threats-1-.html

Exactly one week later, Phil Mulacek resigned as the CEO of Interoil, which he had nursed along from its infancy for over a decade.  Citron notes how the abruptness of his resignation stands out, and comes with no logical explanation.

http://www.interoil.com/investor-relations-news-and-press-releases/2013-2/interoil-corporation-announces-the-retirement-of-ceo-phil-mulacek/

It should be noted that Mulacek’s relation to Belesis did not stop at Interoil.  Mulacek’s brother, also a founding member of Interoil, Pierre Mulacek, had an OTC company that also did business with John Thomas Financial.

http://www.sec.gov/Archives/edgar/data/1191359/000101376208000576/ex101.htm

So here is how it ties together:

Citron will make the assumption that a company like John Thomas Financial did not just one day independently stumble upon Interoil as its best idea for an excellent investment.  John Thomas was a boiler room operation, where hundreds of “phone chimps” cold-called prospects to sell them the “house stock”.  Moreover, we are making the assumption that somewhere in that relationship was an unholy alliance that involved stock manipulation and that Tommy Belesis knows a lot more about Interoil and Mulacek than anyone wants him to.

Just yesterday we read that John Thomas has pulled its registration from FNRA — the firm will cease to exist. 

http://www.investmentnews.com/article/20130710/FREE/130719985

We believe this is a precursor to the next piece of news, which will be an indictment against Belesis.  If you read the charges of pump and dump and physically bullying brokers, it does not take a Wall Street historian to understand this will end in the hands of a criminal prosecuting attorney. 

When that happens, what does Tommy do?  If anyone knows the secrets of IOC, it is Tommy Belesis who knows where the bodies are buried.  Does he disclose his role in the relationships with Carlo Civelli and Phil Mulacek that have dogged Interoil for years?  If in fact we learn that Mulacek was actively involved in illegally promoting Interoil stock, how will that make shareholders feel about the reserves that are allegedly in Interoil’s fields?

This stock has long been a bull vs bear battle that we enjoyed watching from the sidelines.  While the bears have won on the informational side, the stock price has been a stalemate.  Yet we all know that a chain is only as strong as its weakest link.  The new CEO, who was previously unemployed is just window dressing on a bigger story. 

Tommy Belesis and crew are not exactly the type of chaps that either Richard Chandler or John Pauslon would have over for tea or polo in the Hamptons.  It will be interesting to watch this play out over the next months and see if he delivers even more egg on their face.  Eggs Benedict, of course.  

Cautious Investing to All.