Thread: Citron slams NuSkin again for China, dependent on market where reps defrauds / fleeces people w/ cult tactics

Citron Research published a new report on NuSkin, citing Chinese news reports in June and July 2013 that NuSkin apparantly has zero oversight on its Chinese operations which generates almost 30% of its annual revenue.

I read the Chinese reports and it's alarming.

Chinese news reports found vastly exaggerated claims spread through social media, SMS, and Weibo (Chinese twitter) with crap like "cured all sorts of cancer, chronic infection, allergies, etc." with Pharmanex, NuSkin's nutrition line. Reps even have tables of symptoms and what sort of products to push for certain symptions (3 of A, 2 of B, etc.) And symptoms ranges from lightheaded ness all the way to bronchitis to pancreatic cancer. There are even reports where reps dressed in doctor's whitecoats are conducting "free health exams" to push these products, and sometimes, lying about their credentials "I used to work in a hospital but I found this work more rewarding" was a rough translation.

In other cases, reps are clearly cult-ized and brainwashed as NuSkin have adopted "good/benevolence" as their slogan. A really disturbing slogan is (I'm using Chinglish translation to approximate the rhythm) "Use NuSkin takes you to New World, No Use Mean No Believe in Goodness". Recruiting materials have repeated worlds like dream, Dubai, million, replicate, system, goal, good/benevolence. A mother into NuSkin had apparently abandoned her pregnant daughter and any one who tried to intervene / remind her got yelled at with slogan such as above. Family said it's obviously she's brainwashed, but had nowhere to turn for help.

It may be soon that the Chinese authorities may start acting on NuSkin, then where it be?

aren't MLMs of any sort forbidden in china ?

Officially, NuSkin is direct sales only in China.

Unofficially... according to Citron who obtained NuSkin training slides, not so. The slide shows a 2x4 forced matrix (3 levels including root, each node has 4 child nodes except root)

CitronResearch.com – Andrew Left, Executive Editor » Nu Skin’s Dirty Little (ummm …) Big Secret Exposed … In China’s Mainstream Press

China's Nu Skin probe drags down Herbalife, USANA too

Jan 16 (Reuters) - China's regulators launched probes into skincare products maker Nu Skin Enterprises Inc after local media questioned the U.S. company's business practices, dragging down shares of several retailers that use similar distribution models.

Nu Skin shares shed a third of their market value by Thursday afternoon. Shares of nutritional supplements maker Herbalife Ltd fell 10 percent, while those of USANA Health Sciences were down 12 percent.

Earlier Thursday, the Xinhua news agency said the State Administration for Industry and Commerce (SAIC) ordered local authorities to investigate a report in Communist Party mouthpiece, the People's Daily, alleging Nu Skin had been exaggerating its influence and creditworthiness in brochures and organizing "brainwashing" gatherings.

Short sellers and other critics have accused companies such as Herbalife, USANA and Nu Skin of running illegal pyramid-type schemes, questioning their distribution model where distributors make money not only from their own sales, but also from those by people they recruit to become distributors themselves.

In 2012, short seller Andrew Left's Citron Research said Nu Skin's direct-selling business in China was actually "pyramid-selling" and was illegal under Chinese law.

He accused USANA of the same practices in 2013.

The most publicized attack against a nutritional products maker and distributor came from activist investor Bill Ackman, who accused Herbalife in December 2012 of running a pyramid scheme and took a $1 billion short position in the company.

Short sellers make money when the stock price of a company drops. They sell borrowed shares in the hope of buying them back at a lower price and return them to the lender, and gain from the difference in price.

Xinhua, China's state news agency, quoted on Thursday an SAIC spokesman as saying the administration would take legal steps against any violations if the probes showed the media reports were factual.

"We are aware that Chinese regulators have now initiated investigations to review issues raised by recent news reports," Nu Skin said in a statement later in the day.

Herbalife and USANA could not be immediately reached for comment.

Nu Skin said it started its own review of its China operations.

The company said the investigation could hurt China revenues, but added that it was too early to say if its previous forecast would be affected.

The company's sales in Greater China more than tripled to $464.6 million in its quarter ended Sept. 30. The region accounted for about half of total sales.

Nu Skin said earlier in the day that the People's Daily article published on Wednesday contained "inaccuracies and exaggerations that are not representative of Nu Skin's business in China." The company said it did not believe "that the article was the result of any particular government inquiry."

State media took many foreign firms to task last year over pricing, poor quality and shoddy customer service, including Starbucks Corp, Apple Inc, Samsung Electronics , the KFC restaurants of Yum Brands Inc and British drugmaker GlaxoSmithKline PLC.

Reuters.com

Shares of Nu Skin were down again Friday and have fallen more than 40% this week after Chinese state media accused the beauty products marketer of running an illegal pyramid scheme in the country.

The allegations were published Thursday by People's Daily, a Communist Party mouthpiece, in a story that promised to expose how Nu Skin "weaves its lies."

China's powerful State Administration for Industry and Commerce announced it was opening an investigation.

"If the claims are true, the SAIC will resolve the matter according to the law and regulation," the agency said.

Nu Skin (NUS), based in Utah, said it was dedicated to full compliance with China's laws and was approved to conduct direct sales in 19 of the country's 32 provinces.

"The article that appeared in today's People's Daily contains inaccuracies and exaggerations that are not representative of Nu Skin's business in China," it said.

In a second statement, Nu Skin warned investors that "there will likely be a negative impact on China revenue" as the company worked through the "evolving situation."

Nu Skin is a multi-level marketer that has grown rapidly in Asia. Its salespeople make money by selling Nu Skin products and by recruiting new members and taking a portion of their sales.

The company has come under scrutiny from short sellers in the past, but has weathered the speculation, and its shares rose to almost $140 earlier this month. The company has also attracted the attention of regulators, and Nu Skin has been accused of making bogus advertising claims by the U.S. Federal Trade Commission.

In the first nine months of 2013, $909 million of Nu Skin's $2.2 billion in sales were made in the Greater China region, which includes Hong Kong and Taiwan.

Ben Cavender, an associate principal at China Market Research Group, said that while multi-level marketing was once prohibited in China, authorities have loosened their stance -- to the benefit of companies like Nu Skin.

"Multi-level marketing works well in China because there is a lack of trust in a lot of brands," he said. "These companies do really well because new customers are learning about a product from someone they trust in the community."

Still, there is no guarantee that China's more permissive attitude will continue.

"Beijing is looking very closely at corporate behavior -- especially activities that are seen to be taking advantage of consumers," Cavender said.

Shares of Herbalife (HLF), another multi-level marketer that has been accused by critics of running a pyramid scheme, have dropped more 11% since the Nu Skin story broke.

CNN Money.com