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Trouble brewing for Nu Skin in China

Nu Skin Enterprises shares are getting shellacked today after the People's Daily newspaper in China ran an investigative story suggesting that the company is an illegal pyramid scheme.

The stock closed down 15.6 percent on Wednesday.

China has strict rules about direct sellers—very different from U.S. regulations.

The article carries additional weight in China because it was published in the official newspaper of the Communist Party, indicating that the accusations reflect the views of the government.

Click here to see the story.

Nu Skin's Chinese website
Source: Nu Skin
Nu Skin's Chinese website

Nu Skin spokeswoman Kara Schneck said the article "contains inaccuracies and exaggerations that are not representative of our business in China. The publication did not request any information from Nu Skin nor did it attempt to verify any information that it has since reported as fact."

The Chinese government regularly reviews Nu Skin's activities, and the company has received "direct selling licenses" to operate in 19 of the country's 32 provinces and municipalities, she added.

"Any member of our sales force not operating in accordance with local law or with our company policies is subject to discipline," she said.

With the help of CNBC's Beijing bureau chief Eunice Yoon, we've summarized the article's accusations against the company.

As I note in a piece on TheStreet.com today, controversy over Nu Skin's China operations is nothing new. Citron Research was the first to publicly question how the company does business there.

—CNBC Contributor Herb Greenberg is a commentator at TheStreet.com and editor of Herb Greenberg's Reality Check. Follow him on Twitter: @herbgreenberg and Google.

Subscribe to Herb at http://www.facebook.com/herb.greenberg

Questions? Comments? Write to herbonthestreet@thestreet.com.

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