A Provo-based manufacturer and seller of personal-care products is being investigated by the Michigan attorney general's office, accused of operating an illegal pyramid scheme.
Michigan Attorney General Frank Kelley issued a notice of intent to file suit against Nu Skin International Inc., accusing the company of operating a pyramid scheme in Michigan. Kelley also accused Nu Skin of violating consumer protection laws by selling business opportunities without being properly registered with the state. Nu Skin has 10 days to respond or face the possibility of a lawsuit.Nu Skin spokesman Jason Chaffetz denied Kelley's charges. He described the company as a multilevel, or network, marketing firm. It has thousands of independent distributors nationwide.
"It's an obvious misunderstanding," he said. "We truly believe once we've had an opportunity to sit down with the attorney general and explain the situation and what we're doing, there will be no problem."
Nu Skin attorney Mike Smith is scheduled to meet with Michigan officials April 11.
Kelley on Monday said distributors of Nu Skin's skin, hair and nutritional products are rewarded by the company for signing up new distributors.
"Money and prizes are earned just by getting a certain number of people to become distributors, rather than from the sale of the product to consumers," Kelley said in a written statement. "Such practices are defined as pyramid schemes and are in clear violation of Michigan law."
Multilevel marketing plans can be used in Michigan, but they must revolve around the retail sale of products or services.
Chaffetz said the company does not pay people for simply signing up others to sell the products. The only way distributors earn money as a result of signing up new dealers is through actual sales by those whom they sign up, he said.Kelley said Nu Skin also violates Michigan law by requiring its distributors to buy at least $100 worth of products each month. Michigan requires any business that calls for an investment of $500 or more in the first six months to register with the state.
Nu Skin has no such minimum purchase requirement, Chaffetz said. To get into the business, new dealers buy a $35 starter kit.
Pyramid schemes are illegal because it's impossible for all those recruited to actually make the money they are promised, Kelley said.
Chaffetz said Nu Skin does not guarantee specific incomes. "We talk in terms of potential," he said.
The investigation began because of numerous inquiries about Nu Skin, said Chris DeWitt, a spokesman for the Michigan attorney general's office. Several other states are also scrutinizing the company, he said.
In a written response to Kelley's charges, Nu Skin said, "The Michigan statutes in question are very similar to the statutes in numerous other states where these same issues have been addressed. To date, Nu Skin has never had a problem resolving these issues."