Who's Buying Now?

It's a new week, which means it's time to check the most interesting insider purchases.

After reading through numerous filings using insider tracking tool Form 4 Oracle, here are my top five this week.

The week's buying

More insanity at USANA
Today we're continuing with a recent theme: Use caution, for insider buys sometimes tell us a lot less than we'd like to believe.

Consider USANA, a maker of nutritional supplements that makes its money through multilevel marketing (MLM) and which gets lousy ratings in our Motley Fool CAPS investor-intelligence database.

You'll need to know something about MLM before we dig into USANA's story. Here goes: MLM, in its simplest form, combines direct marketing and franchising. For USANA, associates or distributors buy from the parent company and are compensated not only for what they sell, but also for how many others they recruit to sell USANA's products. (New associates pay an up-front fee.)

MLM isn't illegal, but as far as the Federal Trade Commission is concerned, the model may resemble a classic pyramid scheme, where riches are promised to those who get others to pony up cash to a dummy organization.

So far, there's no evidence that USANA is conducting a fraud. But Barry Minkow, a former fraudster turned corporate crime-buster, told Forbes recently that executives have concocted a complicated scheme whereby they're cashing out in huge numbers and covering their dilutive tracks with massive stock buybacks funded with shareholder cash. USANA denied the charges and took issue with the Forbes account here.

But the story, which ran on Aug. 8, seems to have had an effect. From Aug. 9 through Monday, insiders bought $3.54 million in stock -- either directly or through holding companies.

To be fair, I should mention that USANA President Dave Wentz kicked off the buying spree on Aug. 7, acquiring 2,500 shares at $38.34 apiece. Bad timing? Maybe, but personally I find that hard to believe. USANA offered comment on the Forbes story, so Wentz had to know what was coming.

Furthermore, his purchase wasn't under the auspices of a 10b5-1 controlled trading plan. Nor were any of the $3.54 million worth of purchases that would follow. It's as if executives were opening their wallets purely for the purpose of proving Minkow and Forbes wrong. (The SEC's rule 10b5-1 allows people to trade in certain specified circumstances where it is clear that the nonpublic information they are aware of is not a factor in the decision to trade.)

Then there's the press release rebutting the Forbes story. Quoting:

Regarding the article's allegation that USANA is subject to an FBI investigation, USANA has never been contacted by the FBI. Furthermore, the company has no reason to believe that any investigation exists. Indeed, it is the long-standing policy of the FBI not to comment in any way on the existence of any ongoing investigation. [Emphasis mine.]

That, folks, is a nondenial denial and it follows almost exactly what Forbes printed. Quoting the article: "Last week, sources told Forbes.com that the FBI had launched a criminal investigation into the company. USANA says it isn't aware of any such probe."

USANA also claims that Forbes made mistakes in calculating whether it would be in danger of defaulting on loans provided by Bank of America (NYSE:BAC), and offered language from recent SEC filings as proof.

Perhaps that's true. But even if it is, USANA's attempt at a Jedi mind trick with respect to both Minkow ("he's a crook!") and the alleged FBI probe ("nobody's called, so it must not be happening") smell funny.

Finally, let's talk about the math of the purchases. Myron Wentz executed the bulk of the buys through Gull Holdings, his investment company. Gull had collected $5.18 million in proceeds from a sale of 85,000 shares in February. Even with the week's buying, Gull is sitting on at least $1.7 million in cash.

Translation: Wentz is in no danger of ending up poor, no matter what happens to USANA from here.

It's impossible for me to know what motivated the Wentz family to go on a buying spree. For its part, USANA says its stock is cheap: "Obviously, these and any purchases are a sign that the buyers think that the stock is attractively priced and undervalued relative to its strong past performance and growth outlook," investor relations manager Riley Timmer said in an email.

I'd love to believe that, but there are too many unknowns at work here. And what we do know is troubling: USANA is subject to an informal SEC inquiry that's still in danger of becoming a formal probe. Buying under those circumstances -- no matter who else is investing -- isn't Foolish. It's foolish.

That's all for now. See you back here next week when we dig through more insider deals in search of the next home run stock.

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Fool contributor Tim Beyers, who is ranked 7,250 out of more than 60,000 participants in CAPS, didn't own stock in any of the companies mentioned in this article at the time of publication. Bank of America is an Income Investor recommendation. Find Tim's portfolio here and his latest blog commentary here. The Motley Fool has a disclosure policy.