Nu Skin (NUS) said Chinese regulators fined the company a total of $540,000 after a review of the company’s sales model.
According to regulators, certain products from Nu Skin, a direct marketer of cosmetics and nutritional supplements, were approved for sale in retail stores but weren’t available through the direct-selling channel.
The fines also cover allegations that Nu Skin China made product claims without sufficient documentation.
Provo, Utah-based Nu Skin also said six of its sales employees were fined $241,000 combined for unauthorized promotional activities.
Shares leaped 32% to $99.00 in pre-market trading amid expectations that Nu Skin was facing heftier fines. In the month of January, the stock dropped about 38% after China revealed an investigation into the company.
The Chinese market accounted for $1.36 billion of Nu Skin’s $3.18 billion in revenue last year.
“We continue to believe in the potential of China’s large and growing market,” said Dan Chard, Nu Skin’s president of global sales and operations. “We remain committed to working cooperatively with the Chinese government to ensure the healthy, long-term growth of our business.”
The allegations against Nu Skin, which specializes in anti-aging products, surfaced in the official Communist Party newspaper in China. A report accusing Nu Skin of operating a pyramid scheme mirrored similar accusations against Herbalife (HLF), a target of activist hedge fund manager Bill Ackman.
Many foreign companies in China sell their products through distributors, but Chinese regulators intend to increase scrutiny of the system. Distributors make money not only from the products they sell, but by bringing in additional distributors.
Under Monday’s decision, Nu Skin will be required to improve education and supervision of sales representatives.