Herbalife Ltd. (NYSE: HLF) shares dropped with high volume on Monday after a Chinese government regulator announced a crackdown on pyramid schemes. Other U.S. multi level marketing companies such as NU Skin Enterprises Inc. and USANA Health Services Inc. fell as well. China’s State Administration for Industry & Commerce (SAIC) announced on their website that a 3-month campaign will be launched against recruitment by pyramid sellers.
Shares of Herbalife fell more than 5% to $62.42. Nu Skin shares dropped over 7% to $56.01 and USANA Health Sciences plunged 7.5% to $54.40.
There has been a recent outpour of anger online towards pyramid schemes after a young Chinese university graduate was a victim and passed away after seeking a job on one of these scheming websites.
Operators of pyramid schemes make money by recruiting members who pay fees to act as salespeople of goods such as health supplements. Many people were being misled into participating in these acts.
This crackdown will involve Chinese police and education ministry as well to investigate these firms and their recruitment methods mostly targeted towards college students and job seekers.
Herbalife’s stock is sometimes caught in the middle of large bets where 11% of their revenue mostly comes from China. Stock holdings for the company fell by 80% to 275,000 shares during the June 30 quarter.