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We got word that USANA has settled their lawsuit with Barry Minkow and the Fraud Discovery Institute.

In exchange for dropping the lawsuit against Minkow, both Minkow and the FDI agreed that they will no longer trade USANA stock (NASDAQ: USNA). In addition, the FDI will remove all information regarding USANA within their control from their website and will cease from publishing any future statements about the company.

Minkow, who is a convicted criminal, served eight years in jail for stock fraud and when released decided to dedicate his life to torturing network marketing companies (Nu Skin), (Herbalife) and attempting to manipulate their stocks.

Minkow came out with his first negative report about Usana in February of 2007. Minkow went on to buy “put” options on the stock betting that the price would fall. USANA responded by suing both Minkow and the FDI for defamation and stock manipulation.

Apparently after a lengthy battle, both parties were ready and willing to come up with a compromise although it is very unclear what Minkow gets out of this since it seems he has given up all future chances to attack the company but it seems awfully strange that Minkow would agree to no longer trade the stock and will stop talking about USANA.

Hopefully each party is satisfied with the ruling and they can resume business. Minkow is free to torture and manipulate other companies, and USANA, who is in the midst of a corporate restructuring after a failed attempt to go private, can put another legal battle behind them and move on with creating and distributing its nutritional products.

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Shares of USANA have been a bit beaten up over this week after the news that the efforts to take the company private have been scrapped.

USANA has been plague d the last few months with lawsuits and fighting between the company and the minority shareholders over low-ball bid offers. After Monday’s hearing, during which a judge ruled to temporarily halt the bid, USANA had to throw in the towel and admit that they would not be able to acquire enough shares to complete the move to a private company.

Over the last year, USANA’s stock has fallen 34 percent. But the bigger news is the percentage of shares that are floated short. Short Selling is when you reverse the classic buy-low/sell-high order. You first borrow shares of a stock you’re bearish on (through your brokerage) and then sell them, expecting the price to fall. If the price does fall, you buy shares back on the market to replace the ones you borrowed. You’ll have collected more from the initial sale than you spent buying the replacements. Voila — a profit from bearishness!

Think of the many stocks on the market about which people are pessimistic. Many of them will be heavily shorted. If the market starts soaring, taking these stocks with them, what typically happens is that some of those short-investors panic, as their would-be gains are transformed into escalating losses as the stock price rises. They’ll “cover” their positions by buying shares to replace their borrowed-and-sold ones. Doing so will increase demand for those shares and will therefore push prices up even further.

We happen to take a look at what % of Float Shorted is for various companies and USANA happens to have the most at a whopping 68%! Only Beazer homes (NYSE: BZH) was higher at 69% according to Motley Fool. This does not bode well for the company in its continuing struggle to take more control of its shares. Also keep in mind that short selling appears to be the strategy that Minkow has been using to fund his legal efforts.

USANA also announced the date for the release of second quarter results. The results will be released on July 22nd after the close of the market. A conference call will be held the following morning, July 23rd to discuss the announcement with analysts and investors. The call will be held at 11 am eastern time. It should be a very interesting conference call…we will keep you up to date on the details.

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