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PROVO — A class-action lawsuit has been filed against Nu Skin Enterprises alleging that the company made false and misleading statements regarding its growth in China.
The suit filed by stockholder Paul Siesser (and others similarly situated) claims Nu Skin violated U.S. federal securities laws and is considered a pyramid scheme in China — prompting its stock value to plummet, resulting in massive losses for investors.
The company failed to disclose “its fraudulent sales practices and non-compliance with Chinese laws and regulations,” the lawsuit alleges. The suit claims investors who purchased stock between July 10 and Jan. 16 were subject to losses of up to approximately half of their financial investment due to misinformation disseminated purposely by the company.
Throughout that period, Nu Skin repeatedly stressed that China was a "growing market for the direct selling industry, hold(ing) great promise and represent(ing) a significant opportunity to expand (Nu Skin's) business," the suit states. The legal action also claims that Nu Skin “touted the strength of its operations in China; however, in reality the company’s success could not be sustained as local Chinese law and regulations were violated through its business practices.”
Specifically, the suit alleges that "Nu Skin made false and/or misleading statements and/or failed to disclose that the company's operations in the People's Republic of China resulted in pyramid-selling schemes in violation of Chinese law; and as a result, the company's financial statements were materially false and misleading at all relevant times."
In response to the suit, Nu Skin released the following statement: "We believe the allegations are without merit and intend to defend ourselves vigorously."
According to the lawsuit, a Chinese newspaper, People’s Daily, questioned Nu Skin's business practices in China, triggering a government investigation. The lawsuit claims that in the wake of the probe, the share price of Nu Skin stock dropped more than $57 or approximately 42 percent over three trading sessions following various media reports.
The lawsuit says shares of Nu Skin closed on Jan. 15 at $115.23, down from $136.47 on Jan. 14. Nu Skin shares further declined 26 percent to a closing price of $84.80 on Jan. 16, then down to $79.47 on Jan. 17.
“As a result of defendants' wrongful acts and omissions, and the precipitous decline in the market value of the company's securities, (the) plaintiff and the other class members have suffered significant losses and damages,” the suit states.
Founded in 1984 in Provo, Nu Skin Enterprises is a direct selling and multilevel marketing company that manufactures and sells personal care products and dietary supplements under the Pharmanex brand name. The publicly traded firm markets its products in 53 countries around the world.
Besides the company, the lawsuit specially names Nu Skin President and CEO Truman Hunt and Chief Financial Officer Ritch Wood as defendants "liable for the false statements and omissions.”
The suit was filed in U.S. District Court in Salt Lake City and asks for a jury trial and unspecified damages.