Today Citron Research released a report on the fraud being committed in China by Nu Skin Enterprises. NuSkin is a multi-level marketing company based in Utah, and it trades on the New York Stock Exchange under the symbol NUS. This report is a follow-up to an August 2012 report in which Citron revealed its basis for alleging that Nu Skin was perpetrating fraud in China.
Citron first points out how dependent on China Nu Skin is. In the second quarter of 2012, revenues from China were $57 million. In the second quarter of 2013, Nu Skin’s China revenue grew to $197 million. That’s a 245% increase. Without the China revenue, NuSkin’s year-over-year growth would be negative.
An expose was published in China on NuSkin. A translation of the page can be found here. The article accuses Nu Skin of running a pyramid scheme, using endless chain recruitment to bring new marks into the fraudulent business opportunity. Distributors are encouraged to buy inventory in quantities they will never sell, all to move up in the pyramid and qualify for commissions. (Incidentally, this is the same way that Mary Kay Cosmetics has been successful.)
Citron went so far as to send someone to a NuSkin store in China. The person met a Nu Skin distributor who was very happy to give her the whole story on the pyramid scheme structure and the payment of commissions. Of course, the full story was not given in the Nu Skin store, as that is forbidden. It was given at a separate location used to recruit and train new distributors. The commission structure (multiple levels deep, and described in detail) directly violates Chinese laws, according to Citron.
A second article was published by media in China. This one illustrated how dangerous multi-level marketing can be. The owners of MLMs tout the fact that their distributors are in control of their businesses, but that creates a problem. Distributors do and say things that may be harmful to consumers. In this case, MLM participants are saying that MLM products cure all sorts of things such as cancer.
Citron believes that the Chinese government will crack down on NuSkin. We can only hope.