Nu Skin's brochures also claim that the ageLOC technology the company owns can "reset age-related genes" and make people look young. The Nu Skin distributor contacted by People's Daily went further by saying that this gene technology has been verified by scientific studies and that related research results have been published by the Science journal. However, People's Daily reporters could not find any articles in the magazine on Nu Skin's "gene-resetting" technology.

Moreover, the Nu Skin distributor repeatedly mentioned media reports on the company, saying that People's Daily once published four pages of reports on Nu Skin (China) on the same day, and showed a picture of a front page of People's Daily that "reports" Nu Skin's ageLOC technology. But People's Daily reporter found that the "reports" he claimed were actually advertisements for Nu Skin.

In response to the People's Daily report, Nu Skin issued a statement on January 15, claiming that it is engaging in direct selling, not pyramid selling.

In China, direct selling and pyramid scheme are clearly differentiated in law. For direct selling, neither companies nor their branches are allowed to publicize or advertise information on compensation or commissions received by distributors, and they are prohibited from forcing distributors to pay any fees or buy products in the recruitment stage.

In pyramid schemes, distributors are organized in multiple levels and earn from other distributors they bring to the company.

In the late 1980s, a Japanese company named Japan Life went to south China's Shenzhen, selling magnetic mattresses in pyramid schemes. In 1990, the first registered pyramid scheme company on the Chinese mainland, Sino-U.S. joint venture Guangzhou Avon Co. Ltd., was set up. The pyramid-selling boom reached its peak in China in 1993, when there were pyramid scheme organizations in almost all provincial capitals.

Being deceptive in nature, pyramid selling aroused widespread public condemnation. The State Council, China's cabinet, prohibited all pyramid-selling activities in April 1998, and required in June of that year that all foreign-invested pyramid scheme companies should change their sales model and set up retail outlets. In 2005, the Regulations on the Prohibition of Pyramid Selling were enacted, offering legal grounds for cracking down on pyramid schemes. In the same year, the Chinese Government promulgated the Regulations on Direct Selling Administration, protecting legitimate direct-selling activities.

The MOFCOM has awarded direct-selling licenses to more than 40 companies such as Avon, Nu Skin and Amway.

Shen with the MOFCOM said the ministry supports and protects operations of direct-selling companies in compliance with laws and regulations, but if any company or individual is involved in pyramid selling or irregular direct selling, the ministry will support investigation and punishment by related departments in accordance with relevant regulations.

Official statistics show industry and commerce authorities across China investigated 1,141 pyramid scheme cases with a combined value of 3.4 billion yuan ($562 million) in 2013.

Awaiting the judgment

Nu Skin's direct-selling license from the MOFCOM in 2006 allows the company to operate direct-selling business in 14 provinces and municipalities on the Chinese mainland. In July 2013, the MOFCOM allowed Nu Skin to operate direct selling in another five inland provinces as well as 30 districts and counties.

Although it does possess a direct-selling license, Nu Skin has often been implicated in being involved in pyramid selling by the media. For example in 2005, soon after its flagship store in southwest China's Chongqing was set up, it was reported to the local commerce watchdog that the shop was engaged in pyramid selling. In 2007, Nu Skin's branch in Heilongjiang Province was investigated by the Bureau for Industry and Commerce of Harbin, the provincial capital, for suspicious activities.

Each time an allegation has surfaced, Nu Skin has been able to counter using the excuse of being engaged only in direct selling.

According to the recent People's Daily report, to join Nu Skin China, one must first buy its products valued at 500 yuan ($82.6) at retail prices and become a client enjoying a 10-percent discount. Nu Skin's distributors are divided into multiple levels, and the higher level a distributor is at, the higher commission rate he can get. Such a pattern closely resembles that of a pyramid scheme. Moreover, Nu Skin sells more than 100 kinds of products in its sales terminals, while according to information from the MOFCOM, the company is only allowed to sell 84 kinds of products of three categories in 151 districts (counties) in 19 provinces, autonomous regions and municipalities.

If the above facts are verified, Nu Skin will undoubtedly be affirmed to have been involved in pyramid selling.

According to relevant regulations, the SAIC will shut down illegal pyramid scheme organizations and the MOFCOM will revoke the direct-selling license of companies involved in pyramid selling. In addition, organizers of pyramid schemes may face criminal punishment.

It is hard to say whether Nu Skin's fortunes can endure the latest round of allegations, but at the very least, its share prices have been influenced. Nu Skin's New York-listed shares fell 15.56 percent by close of trading on January 15 at $115.23 apiece.

Email us at: lanxinzhen@bjreview.com