Tuesday, August 7, 2:02 PM Shares of Nu Skin (NUS -8.7%) are getting hit today on a Citron Research report accusing the company of being in violation of direct selling rules in China, putting their entire Chinese business operation in jeopardy of seizure.
Citron notes that NUS' China business comprised almost 75% of its Y/Y revenue growth in Q2, making the risk of its China operations coming to an abrupt halt massive, and the consequences devastating. Herbalife (HLF -1.7%) and Usana Health Services (USNA -3.7%) also trade down on the report.
Citron Research: By contrast, China prohibits multi-level marketing strictly and in entirety. Pyramid schemes create victims by creating an endless chain of recruits who recruit new recruits into a wealth transfer scheme which cannot possibly be sustained.
Therefore the vast majority of the participants lose their money. Often pyramid schemes are cloaked in the sale of an overpriced product, with new recruits being required to “invest in inventory” to gain or maintain certain levels of membership which most will be unable to achieve. These abusive business models are understandably outlawed under Chinese law.
China does have a law which defines and permits only “direct selling. Much like many Chinese companies which ignored the regulatory laws of the United States, it is the opinion of Citron Research that Nu Skin is allegedly violating the laws of the PRC, and its entire Chinese business operation could be in jeopardy of seizure and other substantial risks.
Source Seeking Alpha
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