A Chinese news story that suggested Provo-based Nu Skin Enterprises was operating as a pyramid scheme and brainwashing distributors in that country sent the company’s stock plunging nearly 16 percent on Wednesday.
Nu Skin issued a sharp response to the People’s Daily story, saying it “contains inaccuracies and exaggerations that are not representative of Nu Skin’s business in China. The reporters did not attempt to verify any information with Nu Skin.”
The company also said it did not believe the article was the result of a government in inquiry into its activities in China.
Shares of the marketer of anti-aging and other personal care and nutritional products closed at $115.23, down 21.24 points, or 15.56 percent.
Nu Skin said its activities in China, where it has been conducting business for 11 years, are regularly monitored by the government and that it is “dedicated to operating in full compliance with regulations.”
In 2012, Citron Research, a California short seller, alleged that Nu Skin was operating in China as a multilevel marketer in which distributors earn commissions through recruiting new distributors, a business model that is illegal in that country. It based the report on interviews with Nu Skin distributors there.
Nu Skin uses a multilevel marketing business plan in the United States and other countries. Critics contend such an operation is only sustainable by the constant recruiting of new distributors, whose purchases fund profits that accrue to only a small percent of people at the top.
The company denied Citron’s allegations and its shares have been soaring lately as the company continued to report record earnings.
Usana Health Sciences Inc., another Utah MLM with operations in China, saw its shares also decline but only about 4.25 percent. Herbalife, a California MLM with operations in China, saw a small 1.75 percent drop.