Greenberg: Were Stock Bonuses Gamed at Usana?

(Originally published in Herb Greenberg's Reality Check)

SAN DIEGO (TheStreet) -- From the there-ought-to-be-a-law department. On Feb. 3, nine insiders at multi-level marketer Usana (USNA), including CEO David Wentz, got some good (no, make that great!) news: They had received a slug of what appear to be well-priced stock-appreciation rights.

The idea behind these grants, according to the company's proxy, is "to drive long-term Company performance as well as individual Executive performance."

The last time they were handed out was in July 2011. Before that, April 2010.

The difference between now and then: Then, in 2011, the grant was made the day after earnings were released. In 2010 they were made the day earnings were released. This time they were made the day before earnings were released. Wouldn't you know it? This time earnings were much better than expected and the shares soared 19% on the news. (The stock-appreciation rights were priced just before the stock rose.) Last time, in 2011, earnings weren't good enough to keep the shares from sliding 11%. (The stock-appreciation rights were priced just after they fell.) And in 2010, the stock rose 8%.

Funny how that works.

A Usana spokesman pointed me to the company's proxy disclosure which, in effect, says the stock-appreciation rights, which are doled out by the compensation committee of the board, are priced on the date they're granted and approved. They vest over either a five-year period or, as is the case with Wentz and several others, over the last two years of the five-year term that, for the most recent grants, start vesting in 2016.

Obviously, there's no telling what the stock will do by the time they vest, and, if they collapse, this would be moot. But, just as obvious, if the price is considerably higher, the lower the price at the time of grant the better

Reality: As a multi-level marketer, which develops "high-quality, science-based nutritional and personal care products with a primary focus on promoting long-term health and reducing the risk of chronic degenerative disease," Usana has been quite the battleground stock. While the timing of the grants has nothing to do with Usana's underlying business, the timing suggests a surprising level of opportunism by the board in light of a current SEC probe of stock trading by some of the company's directors.

According to the most recent 10-Q:

"On July 23, 2013, the Company disclosed that the Securities and Exchange Commission is conducting a formal investigation, which appears to involve possible issues regarding trading in the Company's stock during late 2012 by certain of the Company's directors, including the Chairman. The Company, as well as certain of its directors and executives, have received subpoenas from the SEC to produce documents related to this matter. The Company and its directors are cooperating with the SEC in this matter. In the opinion of management, based upon advice of counsel, the likelihood of an adverse outcome against the Company in this matter is remote. As such, management believes that the ultimate outcome of the SEC investigation will not have a material impact on the Company's financial position or results of operations."

Maybe not, but it certainly could question the board's judgement. And a board with questionable judgement is not what the doctor ordered for investors in any company, let alone one like Usana.

-- Written by Herb Greenberg in San Diego

Herb Greenberg, editor of Herb Greenberg's Reality Check, is a contributor to CNBC. He does not own shares, short or trade shares in an individual corporate security. He can be reached at herbonthestreet@thestreet.com.

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