The suit, filed by law firm Pomerantz, claims that the cosmetics brand is accountable for the devaluation of its shares following various negative reports on its Chinese sales practices.
Shareholders from the period of October 25, 2011 to January 15, 2014 are being invited to participate in the class action, with applications for chief plaintive open until the March 21 deadline.
The claim
The action details three key occasions on which Nu Skin’s stocks fell during the period for which it alleges the company can be held accountable.
An analyst report in August 2012 was the first to claim that Nu Skin's operations amounted to a pyramid scheme based on multi-level marketing – a structure which is illegal in China. Share value fell in response.
This was followed by a second fall in shares in February 2013, when over 200 pages of documents of consumer complaints from the past five years were published.
Most recently, in January, Nu Skin saw the biggest drop in share prices it has seen in nearly ten years when a leading Chinese newspaper repeated the accusation that the direct selling beauty brand is a ‘suspected illegal pyramid scheme'.
Following the January report, the company’s stocks declined more than 15.2%, from $20.78 per share to $115.23, Pomerantz claims.
Making amends?
The brand is making moves to control the damage that may be done to its business in China, where it currently sees approximately 20% of its annual revenues, which this year are forecast to be in excess of $2.5bn.
It has initiated a province-by-province business review which invites regulators to provide guidance, and states it is “taking steps to reinforce our training and education efforts” of its Chinese sales force.
The company remains unable to comment on the impact upon its sales forecast, and the uncertainty is reflected in the fallen share value.
“There will likely be a negative impact on China revenue, but it is too early to know whether our previous guidance will be affected.”
Elsewhere with shares
The firm, Pomerantz, is also behind the recent filing of a suit against global beauty brand Coty, alleging that the beauty giant misled investors when it went public last year.
These recent class actions suggest that the importance of transparency for shareholder confidence is on the rise for the cosmetics industry.