Nu Skin International and a few of its independent distributors agreed Friday to a $1.2 million settlement with the Federal Trade Commission to end a three-year investigation of the company's marketing practices.
The figure is among the largest amounts the FTC has ever collected from a company.Federal officials concluded that the multilevel marketing firm did not go far enough in penalizing certain distributors who made unsubstantiated claims about products and earnings from 1986 to 1990. Gross sales of Nu Skin's personal-care products during that period were about $1 billion.
Nu Skin attorney Michael Smith does not consider the $1 million the company will pay the FTC a fine. Several distributors will pay another $200,000.
"We particularly don't like the word fine because we don't think we did anything wrong," Smith said. He called it a settlement in the interest of "consumer protection and corporate responsibility."
Smith admitted, however, that the company benefited from sales garnered through independent distributors' misrepresentations.
"Our products are very exciting and, in the past, some people have felt a need to go too far in trying to express their enthusiasm. We are committed to stopping the few who step over the line whenever we can," he said.
Nu Skin said the FTC is expected to make a formal announcement about the agreement next week. FTC officials declined comment Friday.
Smith said the FTC scrutinized every aspect of Nu Skin's business practices and marketing and sales plans the past three years. "We gave them tons of material. It was a complete, top-to-bottom investigation," he said.
Products identified in the probe were Nutriol, a hair preparation formula; Celltrex, a skin hydrating fluid, and Face Lift, a facial mask.
Improper claims about the products occurred in the late 1980s when the company was writing procedures for reviewing and pre-approving distributor-generated sales aids. Before the Food and Drug Administration issued its monograph on hair-loss claims in 1989, similar claims were common throughout the cosmetics industry, Nu Skin says.
The company now reviews all literature and sales aids produced by distributors.
Nu Skin revised parts of it marketing plan in 1992 to reach agreements with six states that alleged the company was a pyramid scheme. The Utah attorney general's office concluded its probe of Nu Skin last July, saying it could no longer justify spending tax dollars on it. The six previous agreements satisfied Utah officials.