Labaton Sucharow Announces $47 Million Recovery in Securities Class Action Alleging Illegal Pyramid Scheme in ChinaNEW YORK (March 1, 2016) – Labaton Sucharow LLP announced today that the Firm reached a $47 million settlement, subject to court approval, on behalf of Boston Retirement System in a securities class action against Nu Skin Enterprises, Inc. (Nu Skin) and others, In re Nu Skin Enterprises, Inc., Securities Litigation, No. 14-cv-0033. Founded in 1984 and headquartered in Provo, Utah, Nu Skin is an international, multilevel marketing company that distributes personal care products and nutritional supplements.
Led by Labaton Sucharow partner Jonathan Gardner, the Firm served as lead counsel representing lead plaintiff Boston Retirement System, alleging that Nu Skin misled its investors, failing to disclose material facts about the success and viability of Nu Skin’s “direct selling” business model and practices in China—specifically 1) Nu Skin’s business practices violated Chinese laws and regulations; and 2) Nu Skin’s rapid expansion and growth in revenues could not continue without its Chinese operations.
During the class period (October 25, 2011 - January 16, 2014), Nu Skin’s Chinese operations accounted for a large portion of the company’s revenues, and Nu Skin repeatedly highlighted the sharp expansion of its China operations as indicative of the success and viability of its business model. However, an August 2012 report alleged that Nu Skin’s operations in China were nothing more than a pyramid scheme based on multilevel marketing, a sales strategy prohibited in China. On this news, Nu Skin’s stock price declined, and Nu Skin’s response was to issue a press release assuring investors that the company was “confident that [its] China operations [we]re in compliance with applicable regulations as interpreted and enforced by the government of China.”
In January 2014, the damaging allegations about Nu Skin’s practices reached a larger audience when China’s leading newspaper, People's Daily, published a separate report asserting that the company’s Chinese operations violated Chinese law and were suspected to be an illegal pyramid scheme. The article further reported, among other things, that the company sold more products than Chinese regulations allowed. In response to these revelations, the company’s stock price fell more than 15 percent that day. The next two days, two separate Chinese agencies announced they initiated investigations into Nu Skin following the People's Daily report. The company acknowledged the existence of the investigations, noting that revenues could be negatively affected. Following these disclosures, the company’s stock price plummeted more than 26 percent, and the following day, an additional six percent.
According to Boston Retirement System Chairman Daniel J. Greene, “We are very pleased with this recovery and look forward to returning it to the class. Boston Retirement System is committed to protecting our members’ interests, and when those interests have suffered due to fraud, we believe it is our mission to pursue recovery for our members and the class.”