Nu-Skin Settlement

After paying a settlement with the SEC, Nu Skin has received final approval for a settlement in a shareholder lawsuit against them for $47 million because it had operated a pyramid scheme in China which it failed to disclose to investors, even as it reported soaring earnings.

“Nu Skin said it and individual officers named in the lawsuit continue to deny the allegations.” – Source

The SEC was going after Nu Skin because One Million RMB (approximately $154,000) was transferred to a charity to obtain the influence of a high-ranking Chinese Communist party official to impact an on-going provincial agency investigation. Nu Skin China described the purpose of the payment to the charity in its books and records as a donation rather than an improper payment to obtain the Party Official’s influence. As a result of this conduct, Nu Skin US violated the internal controls and books and records provisions of the Foreign Corrupt Practices Act (“FCPA”).

Here are the details of the shareholder lawsuit:

This is a federal securities class action brought on behalf of purchasers of Nu Skin’s publicly traded common stock between July 10, 2013 and January 14, 2014 inclusive (the “Class Period”). The claims asserted herein are alleged against Nu Skin and certain of the Company’s senior executives (collectively, “Defendants”), and arise under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10 b-5 promulgated there under.

Nu Skin is a direct selling company that purports to develop and distribute more than 200 premium-quality anti-aging personal care products and nutritional supplements under the Nu Skin and Pharmanex brands in 53 markets worldwide, including North Asia, Greater China, the south Asia/Pacific, the Americas and Europe, the Middle East, and Africa. The Company’s global operations generated more than $2.17 billion in revenue during 2012.

The Company has become very dependent on China for a very significant amount of its revenue and its growth. Sales in Mainland China accounted for approximately one third of the Company’s total revenue in the first nine months of 2013.

Notably, while the Company issued numerous public statements discussing its positive results and increased guidance, especially in light of new product introductions and increased sales in Greater China, it failed to disclose either its fraudulent sales practices and non-compliance with laws and regulations in China, or their potential impact on the Company. Then, in January 2014, two Chinese agencies announced that they were probing the Company’s marketing and business practices in China and that it was suspected the Company was operating an illegal pyramid scheme. These revelations had an immediate and material impact on the Company’s stock price, causing shares of Nu Skin’s stock to tumble over 44% in the two days of trading after these announcements. – Source Nu Skin Shareholder Lawsuit

Nu Skin Settlement Conclusion

I look forward to the day this company is actually held accountable for their actions and shutdown. That day is not today.