February 26, 2016 / 3:49 PM / in 2 years

Skincare products maker Nu Skin settles class action suit

(Reuters) - Nu Skin Enterprises Inc will pay $47 million to settle a lawsuit that alleged the skincare products maker operated a pyramid scheme in China and made false and misleading statements about its operations in the country.

Nu Skin’s shares rose as much as 4 percent to $31.35 in early trading on Friday.

The settlement, which will be paid by Nu Skin's insurers, is not expected to result in a net charge to the company's income statement, Nu Skin said in a filing. (1.usa.gov/1WNJyOT)

The company said the deal is subject to court approval and a final approval is expected in mid-2016.

Nu Skin and other direct-selling companies such as Herbalife Inc have come under increased scrutiny after short sellers and other critics have accused them of running illegal pyramid-type schemes.

Under such schemes, distributors often make more money by recruiting agents than from actual product sales.

Short seller Andrew Left’s Citron Research said in 2012 Nu Skin’s direct-selling business in China was actually “pyramid-selling”, which is illegal under Chinese law.

Nu Skin has denied the allegations.

The company also said on Friday a Japanese court had upheld a previous decision regarding customs assessments related to the import of several of the company’s products.

Under the customs dispute, Japan’s government had required Nu Skin to pay more than $30 million in duties.

“The company is disappointed with the court’s decision and will consider appealing,” Nu Skin said in the filing.

As a result of the decision, Nu Skin said it expects to record a non-cash charge of about $32 million, or about 36 cents per share, in the first quarter of 2016.

Reporting by Siddharth Cavale and Subrat Patnaik in Bengaluru; Editing by Saumyadeb Chakrabarty

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