(Reuters) - Nu Skin Enterprises Inc’s (NUS.N) finance chief on Wednesday dismissed a noted short-seller’s claims that the company’s sales model in China was illegal, and said there was no need to change it.
“We’re confident that it’s kosher,” Chief Financial Officer Ritch Wood said in an interview. “We don’t feel like we need to make any changes to our business model,” he said, adding that Chinese officials have never asked Nu Skin to do so.
On August 7, Nu Skin shares fell 9.9 percent to $44.36 after Andrew Left’s Citron Research published a report claiming that Nu Skin’s sales model on mainland China amounted to an illegal multi-level marketing scheme and said its fast-growing Chinese business could face seizure by authorities there.
The company’s shares closed at $42.50 on Wednesday.
Wood said that Chinese authorities had not been in touch with the company about Citron’s allegations.
Left, who is based in Los Angeles, confirmed to Reuters when reached by phone on Wednesday that he had not contacted Nu Skin’s management prior to posting his report on Citron’s website.
“I am not sure he has the intention to understand how the company operates,” Wood said.
Three months ago the shares of Nu Skin’s rival Herbalife Ltd (HLF.N) were pummeled when prominent short-seller David Einhorn questioned its distribution model.
Wood, who is due to speak at an investor conference in Boston on Thursday, said shareholders had raised questions after Left’s report.
In recent years, Left’s reports have played a role in drawing attention to potential accounting irregularities at several Chinese companies, including China MediaExpress Holdings and Longtop Financial which were delisted from U.S. Exchanges.
Nu Skin only uses representatives to sell its products directly to consumers in many countries. It operates differently in China, where it has physical stores and sales representatives to comply with Chinese regulations.
Left’s report said that Citron had “engaged some undercover ‘customers’ who helped us expose the truth.” Left also cited Chinese laws and a U.S. regulatory filing in August in which the company said it would “continue to attract significant scrutiny” from the Chinese government.
Left divulges on the website that he might hold positions, short or long, in securities profiled on the website. Short sellers make profits when shares decline.
Nu Skin’s shares had gotten a boost in July when it raised its 2012 profit outlook after reporting better-than-expected quarterly financial results, helped by sales of its ageLOC anti-aging product.
Wood said on Wednesday that Nu Skin expects sales on mainland China to hit $230 million this year, compared with $152 million in 2011.
Nu Skin is one of 30 companies to win a direct selling license since China started granting them in 2006. Amway, Avon Products Inc (AVP.N), and Herbalife are also licensed there.
Wood said Nu Skin is in regular touch with Chinese authorities given the scrutiny to which direct sellers have been subjected there.
“We have to be very vigilant, as any successful company is going to need to be in China,” Wood said.
Reporting By Phil Wahba and Daniel Bases