Nu Skin Enterprises will pay $47 million to resolve a class-action lawsuit alleging the company misled shareholders about its business practices in China. The settlement aims to close a chapter on claims that surfaced in early 2014.
Reports in Chinese media that January accused Nu Skin of operating a pyramid scheme. This triggered an investigation by Chinese authorities, which resulted in a $781,000 fine for the direct selling company. The shareholder lawsuit followed in February 2014, contending that Nu Skin had misrepresented its operations to investors. After nearly two years of legal proceedings, the settlement amount will be covered by the company's insurers, according to a regulatory filing.
The proposed settlement requires approval from a federal judge. Clearance was anticipated by mid-2016, which would conclude the class-action litigation. The wider impact of the Chinese scandal on Nu Skin's global activities remained uncertain at that time.
The allegations of a pyramid scheme in China significantly impacted the company. Following the shutdown of those operations by Chinese authorities, Nu Skin experienced a sharp decline in profits, dropping by 63 percent. A separate investigation into the same matter by the U.S. Securities and Exchange Commission (SEC) was ongoing, with its outcome undisclosed.
Nu Skin faced other financial challenges as well. The company recently lost an appeal in Japan concerning a customs dispute, leading to a $32 million liability for duties.
In October 2016, a federal judge granted final approval to the $47 million settlement, bringing the shareholder class-action case to a close.