Direct selling of beauty products may get ugly after Nu Skin scandal

Perhaps the only real surprise in the recent scandal surrounding cosmetics firm Nu Skin Enterprises is that it has taken this long for the mainland to investigate pyramid scheme accusations against the direct seller.

Prompted by a scathing People's Daily report on January 16, two Chinese regulatory bodies announced they would investigate into the company's practices, causing the Utah-based company's share price to plunge more than 44 per cent and pulling down with it fellow American direct-seller Herbalife, which fell 10 per cent.

Back in its home market, a class action lawsuit was also filed in the District Court claiming that Nu Skin failed to disclose it was engaging in "fraudulent sales practices" that did not adhere to Chinese laws.

In June last year, Beijing Youth Daily also published accusations against the company, which led short seller Citron Research to publish a report in October saying Nu Skin was "extraordinarily dependent on China for a disproportionate amount of its gross revenues, and all of its growth".

The company, which has been doing business in China for 11 years, has denied any wrongdoing. For the time being, however, it has halted promotional meetings for its sales representatives on the mainland and is conducting an internal review.

"We have initiated our own province-by-province business review and will invite relevant regulators to provide guidance," the company said in a statement.