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China's Nu Skin Probe Puts Other Direct Sellers on Notice

A Nu Skin operation in Beijing
A Nu Skin operation in BeijingPhotograph by Imaginechina via AP Photo

News that regulators in China are investigating Nu Skin Enterprises has sent its shares plunging by almost 50 percent over two days. The announcement from China’s State Administration for Industry and Commerce follows a report in the official People’s Daily newspaper that alleged Nu Skin brainwashes its salespeople and sells more types of products than it’s allowed to.

Government scrutiny could easily expand to other so-called direct sellers in China, which has some of the most restrictive laws in the world on how they are allowed to operate. In general, these kinds of companies rely on door-to-door salesmen, as opposed to a chain of stores, and salespeople earn money both for selling products and for enlisting new members into the enterprise.