A leading Utah nutritional supplement seller, Nature's Sunshine Products of Provo, has been fined $600,000 and its CEO and a former officer each will pay $25,000 under a complaint filed Friday in federal court that said the company bribed Brazilian officials to allow its products into that country.
The company and the top officers agreed to the fines to settle the case that has been pending since at least 2006 when the company's auditors, KPMG, resigned, saying CEO Douglas Faggioli had twice lied to it about an "alleged fraud," and had approved a bribe.
A class-action lawsuit by stockholders remains pending in federal court with allegations that officers of the nutritional supplement and personal-care products seller misled them and the Securities and Exchange Commission about the company's financial situation. This, they said, caused an abrupt drop in share prices and delisting from Nasdaq stock exchange.
But the SEC settlement puts that long investigation behind the company. Its over-the-counter shares finished the day Friday at $5, unchanged from the previous day with hardly any shares changing hands.
Nature's Sunshine declined a request for interviews, and Faggioli did not return a phone message seeking an interview. But the company issued a statement noting that the complaint does not allege either Faggioli nor any other top company officials knew of the bribes. Faggioli, who was chief operating officer at the time of the bribes in 2000 and 2001, was made CEO in 2006 and is a member of the board.
"Nature's Sunshine now believes that all government investigations relating to potential Foreign Corrupt Practices Act violations by the company or related persons have been fully resolved," the statement said. "The company anticipates no action by the Department of Justice in a previously disclosed investigation relating to these events."
Ken Israel, the head of the SEC office in Salt Lake City, characterized the complaint as serious.
"We bring a number of foreign corrupt-practices cases a year nationwide, and we view them as significant violations," he said.
Faggioli and Craig Huff, the former chief financial officer, each were fined $25,000 because they had a duty to supervise the employees who bribed Brazilian officials.
The bribes began after the Brazilian government reclassified certain vitamins, herbal products and other supplements as medicine. After the change, Nature's Sunshine was unable to register some of its products as medicine and, as a result, could not import them into the country; sales declined sharply as a result.
To regain sales, the company's Brazilian subsidiary paid customs brokers who then paid off custom officials to allow the unregistered products into the country. Nature's Sunshine failed to disclose the payments to the SEC as required.
Since the start of the SEC investigation, the statement said Nature's Sunshine has hired a new chief financial officer, general counsel and chief compliance officer. Five independent members were added to its board of directors.
Nature's operates in some 21 foreign countries, has more than 1,000 employees and claims 730,000 independent distributors.