* China fines NU Skin $540,000 for illegal product sales
* Penalty narrower than expected: analyst
* NU Skin unaware of other enforcement investigations
pending in China
* Shares up 33 pct before the opening bell
(Adds share movement and analyst comment)
March 24 A Chinese regulator fined NU Skin
Enterprises Inc a smaller-than-expected $540,000 for
illegal product sales and misleading local consumers, sending
its shares soaring as much as 33 percent in U.S. premarket
The company sold items outside the permitted range and
overstated the potential results from using some of its
products, China's State Administration for Industry & Commerce
(SAIC) said in a statement on its website, adding some employees
had also engaged in unsanctioned sales and misled consumers.
NU Skin has been fined $540,000, while six sales staff will
also face individual fines totalling $241,000, the U.S. firm
said in a statement.
The company has previously said it has taken steps to
resolve the matter and said last week it expected to face a fine
"The scope of the penalties is a little narrower than we had
expected," J.P. Morgan Securities analyst John Faucher wrote in
Direct sales firms have come under fire in China, with the
official People's Daily newspaper saying in January NU Skin had
organised "brainwashing" gatherings, prompting SAIC to launch a
probe. This dragged down NU Skin's shares, as well as rivals
Herbalife Ltd and USANA Health Science Inc.
"The company is already taking steps to correct the issues
raised in the SAIC reviews, and is not aware of any other
material enforcement investigations currently pending in China,"
NU Skin said.
The company added it would seek direction from the
government about restarting normal business activities in China.
It previously suspended promotional meetings and accepting
applications from prospective new sales representatives.
SAIC said it would also look to increase regulation of the
direct sales sector, an area analysts said was a regulatory grey
area in China. This could pose a headache for rivals such as
Herbalife, currently under investigation in the United States.
"For the next step, SAIC will work with other departments to
increase the level of regulation of the direct sales market and
sternly investigate and prosecute any illegal behaviour in the
direct sales sector," the SAIC statement said.
Chinese laws allow direct sales under limited conditions,
but there are laws banning so-called pyramid selling, when
members make more money recruiting new members than selling the
The company's shares rose to $99.69 in premarket trading on
Monday after closing at $75 on Friday on the New York Stock
Exchange. They have lost more than a third of their value since
Jan. 16 when China started its probe.
(Reporting by Adam Jourdan in Shanghai and Shailaja Sharma in
Bangalore; Editing by Kazunori Takada, Matt Driskill and Savio