Shares of Nu Skin (NUS) surged nearly 20% Monday after China announced a minimal fine to the skin care sales and marketing company. Investors had feared a far worse punishment. Shares of fellow multi-level marketer Herbalife (HLF) are up as well as investors shrug off hedge fund honcho Bill Ackman's concerns about similar sales violations.
China's Administration of Industry and Commerce is penalizing Nu Skin only $781,000. The slap on the wrist breaks down like this: $524,000 for the sale of certain products by direct sellers that were not registered appropriately in the country, $16,000 for product claims that were deemed to lack "sufficient documentary support", and $241,000 for unauthorized promotional activities carried out by six Nu Skin employees.
Multi-level marketers like Nu Skin and Herbalife have been criticized because they make their money by selling products to distributors, who in turn sell to other local sales people, rather than the actual end users. For their part, Nu Skin and Herbalife say their business practices are no different from other personal care marketing companies like Avon (AVP).
Nu Skin was attacked in January by the state-run Chinese newspaper People's Daily for using what the paper called "brainwashing" methods to sell its products. The article also said that the company was a pyramid scheme, knocking 20% off shares of the company in a single day. So far this year, shares of Nu Skin are down more than 30%. However, the stock has doubled over the past twelve months.
Herbalife has been in the cross-hairs of Ackman, who brought his fight with the company to China earlier this month. He has already accused Herbalife of violating China's direct-selling laws. Ackman first called the diet shake seller a pyramid scheme more than a year ago when he disclosed a $1 billion bet that the company's stock will fall. So far this year the stock is off more than 30%, but it has shown signs of a rebound this month.
Ackman famously feuded with investor Carl Icahn, who bought Herbalife shares even as Ackman was shorting them. The two had a memorable debate, trading insults on live TV last year. Herbalife announced Monday that it will nominate three more Icahn designees to the company's board at the annual meeting. Icahn and related groups hold nearly 17% of the common shares and already have two seats on the 13 member board.
Shares of Herbalife dropped more than 8% Wednesday after the nutritional products distributor revealed that was being investigated by the Federal Trade Commission. Trading of the stock was briefly halted prior to the announcement.
"Herbalife welcomes the inquiry given the tremendous amount of misinformation in the marketplace," the company said in a statement. "Herbalife is a financially strong and successful company, having created meaningful value for shareholders, significant opportunities for distributors MOREJesse Solomon - Mar 12, 2014 2:53 PM ET
Bill Ackman has said he will go "to the end of the earth" to bring down Herbalife. Tomorrow, he will take the fight to China.
The hedge fund billionaire plans to unveil new evidence Tuesday that he says shows Herbalife (HLF), which sells nutritional supplements through a network of independent distributors, is operating in violation of Chinese law.
Pershing Square Capital Management, Ackman's $11 billion hedge fund, will release a report showing MOREBen Rooney - Mar 10, 2014 11:53 AM ET
Here's a fun fact: The stock market, as measured by the S&P 500 (SPX), had its strongest performance this year since the Wolf of Wall Street roamed lower Manhattan.
The broad market gauge has gained 29.6% in 2013, its biggest jump since 1997 -- the year before Jordan Belfort, the hard-partying founder of brokerage firm Stratton Oakmont, was indicted for securities fraud and money laundering.
Belfort, who served nearly two years in MOREBen Rooney - Dec 31, 2013 7:22 AM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
Hedge fund manager Bill Ackman is having a rough year. But don't shed too many tears for him ... not that you probably would anyway, given that he's a billionaire and all.
Yes, Ackman's Herbalife (HLF) MOREPaul R. La Monica - Aug 13, 2013 12:57 PM ET
This article was published in the July issue of Money magazine.
You may think it's crazy to buy shares of companies that have a lot of people betting against them. Yet isn't that the very essence of contrarian investing?
Several stocks that have been recent targets of short-sellers -- investors who borrow shares and sell them, hoping to buy them back later at lower prices -- have been some of Wall Street's big winners MOREPaul R. La Monica - Jun 19, 2013 9:20 AM ET
KPMG has resigned as auditor of Herbalife and Skechers after learning that a senior partner in its Los Angeles office had allegedly provided insider information about the companies to an outside party, who traded on the information.
KPMG declined to comment about the companies' identities. Both Herbalife and Skechers confirmed the news in statements.
Shares of Herbalife (HLF), which had been halted since just before the market opened, slid MOREHibah Yousuf - Apr 9, 2013 3:45 PM ET
Shares of Herbalife jumped Thursday after the nutritional supplement company said billionaire investor Carl Icahn will be allowed to nominate two board members.
Herbalife (HLF) shares ended the day up 7%. The stock was briefly halted on the news.
Under the terms of a deal with Icahn's holding company, Herbalife agreed to have Icahn nominate two members to the company's board, which will grow to 11 directors. The new board members will MOREBen Rooney - Feb 28, 2013 4:39 PM ET
JC Penney's latest tangle has many folks speculating about whether there's another hedge fund battle brewing.
The retailer said it received a Notice of Default from law firm Brown Rudnick, which claims to represent an "ad hoc" group who hold more than 50% of JC Penney's bonds due in 2037.
JC Penney says the notice is "utterly without merit" but it's raised speculation as to who is behind this so-called ad hoc MORECatherine Tymkiw - Feb 5, 2013 12:33 PM ET
Shares of Herbalife (HLF) bounce back from a sharp drop Monday morning after the New York Post reported that the company is the subject of a federal investigation. Herbalife's stock fell nearly 13% shortly after the open but finished the day up more than 1%.
The investigation was revealed after the Federal Trade Commission disclosed a list of 192 complaints against Herbalife from the past seven years in response to a Freedom of Information Law request MOREHibah Yousuf - Feb 4, 2013 4:01 PM ET
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