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Herbalife, Nu Skin shares plunge over fears of Chinese crackdown

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Shares of Herbalife Ltd., Nu Skin Enterprises Inc. and USANA Health Sciences Inc. tumbled on Monday over concerns that Chinese regulators will crack down on the companies’ marketing practices.

Herbalife plunged as much as 7.8 percent to $60.71, marking the biggest decline in more than two months. Nu Skin fell 9.6 percent to $54.68, while USANA declined 10 percent to $52.85.

The rout followed a statement posted on China’s State Administration for Industry & Commerce website announcing a three-month campaign to police pyramid schemes. Though the agency didn’t name the companies, Herbalife and other so-called multilevel-marketing businesses have faced allegations that they use a pyramid sales model. Herbalife settled a case with the Federal Trade Commission last year that reined in its practices in the U.S.

Herbalife and USANA sell a range of nutritional supplements and other products, while Nu Skin focuses more on beauty items. But all three companies see China as key to their growth, making a potential crackdown especially risky.

Herbalife, the largest member of the trio, has been waging a high-profile battle with billionaire Bill Ackman over whether it’s a pyramid scheme -- an accusation it has repeatedly denied. Ackman, head of hedge fund Pershing Square Capital Management, began his crusade against the nutrition company in late 2012 with a $1 billion bet against Herbalife’s stock.

As part of the FTC settlement last year, Herbalife agreed to revamp its U.S. operations and pay $200 million to refund distributors. The agency stopped short of calling the company a pyramid scheme.

The agreement with regulators obligated Herbalife to start showing that the majority of its U.S. revenue is generated by consumers. Ackman has said that the company’s sales are mostly fueled by Herbalife distributors trying to reach income payouts -- not legitimate demand for its weight-loss shakes and energy drinks.


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