nu-skin-logoBack in late 2014 news broke that Nu Skin was under SEC investigation. At the time CEO Truman Hunt claimed he wasn’t aware of an investigation.

By mid 2015 Nu Skin acknowledged the SEC investigation existed, having purportedly only become aware of it in April.

Before we get into today’s settlement announcement, a recap of what the SEC’s investigation into Nu Skin was all about.

In early 2014 news broke that Chinese authorities figured Nu Skin was a pyramid scheme and conducting “illegal business” in China.

Prior to the news breaking, Nu Skin made a donation to an unnamed charity. The SEC investigation is believed to have pertained to whether or not this was a bribe.

On September 20th, 2016, the SEC filed cease and desist proceedings against Nu Skin.

Rather than deny wrongdoing and clear their name, Nu Skin responded by offering a settlement agreement.

The proposed settlement agreement charges Nu Skin with failing

to devise and maintain a reasonable system of internal accounting controls over its subsidiary’s operations in the People’s Republic of
China in 2013.

As a result, One Million RMB (approximately $154,000) was transferred to a charity to obtain the influence of a high-ranking Chinese Communist party official (the “Party Official”) to impact an on-going provincial agency investigation.

Nu Skin China inaccurately and/or unfairly described the purpose of the payment to the charity in its books and records as a donation rather than an improper payment to obtain the Party Official’s influence.

As a result of this conduct, Nu Skin US violated the internal controls and books and records provisions of the Foreign Corrupt Practices Act (“FCPA”).

As suspected, Nu Skin bribed their way out of the 2014 Chinese investigation.

The investigation came about after an unauthorized 2013 event held by Nu Skin China.

In 2013, sales representatives of Nu Skin China held an unauthorized promotional meeting in a city in which, at the time, Nu Skin China neither possessed a direct selling license nor had a physical store.

Representatives of the province’s Administration of Industry and Commerce (“AIC”) discovered the meeting and initiated an investigation of Nu Skin China.

Following the initial investigation, the AIC informed Nu Skin China that it had gathered enough information to support violations of the Direct Selling Laws against the company for the unauthorized activities of
its sales representatives.

The rhetoric that surfaced in early 2014 was much stronger, accusing Nu Skin of all manner of violations.

Reading between the lines, it appears Nu Skin forgot or simply didn’t pay someone who was expecting to get paid… and boom, AIC investigation.

What followed was MLM, China style.

Concerned about the AIC investigation, certain Nu Skin China personnel decided to initiate a charity project in the province in order to affect the outcome of the investigation.

A Nu Skin China employee contacted the Party Official, who was his acquaintance, to suggest a charity located in the province.

The Party Official had a pending request to Nu Skin China to facilitate
obtaining college recommendation letters to U.S. universities from an influential U.S. person for his child.

The Party Official proposed a charity, although at the time a branch of the charity had not yet been established in the province and it had no operations there.

The Party Official, however, was associated with the entity that was responsible for establishing the charity in the province.

Further, the provincial head of the AIC had previously reported to the Party Official.

So much grease, so many wheels.

A week later, the AIC informed Nu Skin China that the AIC intended to charge Nu Skin China and certain of its sales staff with Direct Selling Law violations and to impose a fine against the company in the amount of 2.8 Million RMB (approximately $431,088).

In response, as reflected in an internal email, Nu Skin China informed the AIC of Nu Skin China’s desire to reach an outcome in which the company was not charged and to “donate some money instead of a fine.”

That wasn’t enough though, so Nu Skin China sweetened the deal with a 1 million RMB bribe.

Senior personnel of Nu Skin China then made a decision to request that the Party Official personally intervene in the AIC matter in return for Nu Skin China making a One Million RMB donation to the charity identified by the Party Official.

As further indicia of the improper purpose for the payment to the charity to obtain the Party Official’s influence with the AIC investigation, Nu Skin China also requested that Nu Skin US expedite getting college recommendation letters for the Party Official’s child.

Following the decision to seek the Party Official’s assistance, as reflected in internal emails, the request for the recommendation letters was elevated to “top priority” as it was “becoming increasingly important” for Nu Skin China.

Nu Skin US subsequently reported to Nu Skin China that it had secured an agreement from an influential U.S. person to write the college recommendation letters for the Party Official’s child.

While all this was happening, the AIC weren’t getting paid and

reiterated its intention to charge Nu Skin China with violations of the Direct Selling Laws.

Following this status update, Nu Skin China determined that a public donation signing ceremony for the charitable donation should be held in a
matter of days.

This was flagged by Nu Skin US as a potential liability.


Nu Skin US, however, identified that a large donation in China could pose FCPA risks, so it advised Nu Skin China to consult with outside U.S. legal counsel based in China to ensure that the donation complied with the FCPA.

Outside counsel advised Nu Skin China not to engage in corruption, nah… just kidding.

Like so many companies before them, Nu Skin figured it could hoodwink regulators with pseudo-compliance.

Outside counsel, in turn, recommended that Nu Skin China include


To what extent this meant the government official the donation was intended to be paid to might not have received the money is unclear.

What we do know however is that

the anticorruption language, however, was removed from the final version of the donation agreement that Nu Skin China executed.

Nu Skin US claim they were unaware the language had been removed.

A week later the ceremony took place and Nu Skin paid off the AIC and party official.

At the ceremony, the Party Official gave a speech praising Nu Skin China.

The day after the donation ceremony, a Nu Skin China employee suggested contacting the Party Official to request that Nu Skin China not be named or fined by the AIC.

Internal emails reflect that Nu Skin China believed that such action was “crucial for us to settle this issue [the AIC investigation] peacefully.”

Two days later, Nu Skin China received notice of the AIC’s final decision in which the company was neither charged nor fined.

What a farce.

The SEC’s investigation focused on what extent Nu Skin US was aware, involved in and/or liable for the actions of Nu Skin China.

The SEC’s investigation found

Nu Skin US did not devise and maintain a reasonable system of internal accounting controls over its subsidiary’s operations in China to ensure that transactions were recorded as necessary to maintain accountability for assets, particularly with regard to illicit payments through the guise of charitable donations.

policy and the FCPA.

Despite Nu Skin China being rotten to the core and Nu Skin US failing to account for their Chinese operations, the settlement agreement with the SEC is for a measly $765,688.

That’s not a typo.

To put the $765,688 fine into perspective, earlier this year Nu Skin paid $47 million dollars to settle a civil lawsuit filed by disgruntled shareholders.

How is it that a billion dollar US company caught red-handed engaging in political and regulatory corruption cops a fine of less than $1 million?

The settlement agreement also stipulates that Nu Skin will ‘cease and desist from committing or causing any violations and any future violations‘.

Right. But does anyone really believe Nu Skin China has cleaned up their act?