What A Chinese Crackdown On MLMs Could Mean For Herbalife, Nu Skin And More

Amid a crackdown on pyramid schemes and the arrests of Shanxinhui management, four government agencies in China have been assigned the task of "resolutely eradicat[ing]" multi-level marketing firms, according to reports by local news sites.

The Ministry of Education, Ministry of Public Security, State Administration of Industry and Commerce, and Ministry of Human Resources and Social Security will together lead a three-month “rectification” campaign starting Tuesday. They're said to specifically target employee recruitment.

Some interpret the regulation as a direct threat to the likes of Herbalife Ltd. HLF.

Herbalife 20% sales in China - translated press "resolutely eradicate all kinds of MLM organizations" $HLF

— Matthew R Handley (@handleyandco) August 14, 2017

"It could have a profound impact on the business, because it has been for the last few years the fastest growing revenue segment for the company," Chris Irons of Quoth The Raven Research told Benzinga. "It's definitely the main artery in terms of the company's sales. When you add this to the growing risk profile of the company's operations globally, you have to wonder if other governments will start to follow suit."

The likelihood of inspiring a U.S. regulatory intervention is yet unknown, but MLM investors responded to the news with seeming alarm.

Herbalife fell 8.4 percent, while USANA Health Sciences, Inc. USNA dropped 11 percent, Nu Skin Enterprises, Inc. NUS 10 percent and Avon Products, Inc. AVP 3.8 percent. Each recovered slightly before the close.

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