US-based law firm Bronstein, Gewirtz & Grossman (BG&G) has announced it will investigate potential claims made about Nu Skin Enterprises concerning potential violations of federal securities laws.
This comes after shares of the cosmetics maker fell approximately nine percent to close at $44.36 earlier this week as a result of a report published but Citron Research.
In the report , Citron alleges that Nu Skin is operating an illegal multi-level marketing scheme in China, carrying out ‘pyramid-selling’, and is thus operating illegally under Chinese law.
"We believe they violate laws regulating direct selling, as well as the prohibition on pyramid sales, specifically by supporting the creation of a multi-level pyramid compensation scheme, as well as requiring purchases in order to participate in sales commissions or salary," Citron says on its website.
Working within the law
However, Utah-based Nu Skin responded in a statement claiming its operations in China were all above board and in compliance with local regulations, even stating that it had been issued with new direct selling licenses in several territories by the government.
"Nu Skin has been doing business in China for eight years and the government has regularly reviewed the company's business activities," said the statement, which also acknowledged that its business model in China differed from its global model, although not outside of the law.
“Our operations in China are subject to significant government scrutiny, and we could be subject to fines or other penalties if our employees or direct sellers engage in activities that violate applicable laws and regulations.”
“The legal system in China provides governmental authorities with broad latitude to conduct investigations,” it continues.
Key China market
China has been a key focus for Nu Skin in the last year having experienced a record-setting response to its ageLOC product introductions in the Greater China and South Asia regions.
The company began the global roll-out of its new anti-aging products in the first quarter in the US, Japan, Korea and Europe, but it is the Greater China and South Asia regions that have been the big winners.
Sales in Greater China more than doubled to $199.7 million in its last reported quarter, representing a third of total sales, and making it Nu Skin’s largest revenue contributor.
BG&G, which is a corporate litigation boutique, is looking into the matter and is currently seeking further information on the situation.