Skip to main content

Posts

Showing posts from 2014

Nu Skin Inventory Red Flags Remain Even After $50 Million Impairment Charge

On July 22, 2014, I warned investors that Utah-based multi-level marketing company Nu Skin Enterprises' (NYSE: NUS) surging inventory levels might lead it "to recognize a material impairment charge against inventory in a future period." On August 4, 2014, in a follow-up blog post co-authored with Zac Prensky, we warned investors about a massive inventory pile up in Mainland China. On August 6, 2014, Nu Skin reported its second quarter 2014 financial results and recorded "a $50 million write-down of Mainland China inventory." However, even after the $50 million inventory impairment charge, the pile of remaining unimpaired inventory is equal to enough merchandise to fulfill 335 days of sales versus only 146 days of sales in the comparable second quarter of the previous year. Therefore, there is a high risk that Nu Skin may have to reduce gross margins to clear out excessive inventories and there remains a high risk that it may have to report another material inv…

Why Nu Skin Must Come Clean on Troubling Inventory Red Flags

Co-authored by Sam E. Antar and Zachary Prensky

This coming Wednesday morning, Utah based multi-level marketing company Nu Skin Enterprises (NYSE: NUS) is scheduled to report its second quarter earnings. In its Q1 2014 10-Q report issued in May, major questions were left unanswered as inventories ballooned to $410 million. This pile of inventory is equal to enough merchandise to fulfill 346 days of sales – compared to only 149 days of sales in the comparable first quarter of the previous fiscal year. It's an increase of 132% over the prior year – an enormous red flag that shareholders would have expected management to explain in significant detail.

Rising inventory levels don't square with management's explanation

In its Q1 2014 10-Q report (page 17), Nu Skin claimed that, "we built a large amount of inventory during the first quarter for planned product launches in 2014...." However, Nu Skin’s excuse does not square with its own reported numbers. In reality, the …

Do Nu Skin Inventory Red Flags Spell Trouble Ahead?

Last Friday morning, a comment posted on Twitter by Marc Cohodes about Nu Skin Enterprises (NYSE: NUS), a Utah based multi-level marketing company, caught my curiosity. Cohodes is a legendary short-seller with an excellent track record and looks for "fads, frauds, and failures" involving public companies. He wrote, "The Clown who runs NUS tried to squeeze shorts. Screw him! He will get what's coming to him in spades one day. Too much Inventory is an issue." Afterwards, I decided to take a close look at Nu Skin's financial reports. So far, my first issue is that management's explanation for its massive increase in inventory levels does not square against its own historical numbers, guidance it gave to investors, and analysts' consensus estimates. In addition, Nu Skin may be have to take significant margin reductions to unload its excess inventory and possibly have to recognize a material impairment charge against inventory in a future period.

Backgro…

Indicted Former Utah Attorney General Mark Shurtleff was bribed by Overstock.com too

My experience in dealing with former Utah Attorney General Mark Shurtleff goes way back. On October 30, 2007, Overstock.com (NASDAQ: OSTK) paid him $5,000 purportedly as a "campaign contribution." Two weeks later, Overstock.com issued a press release together with a defamatory "open letter" written by Shurtleff making baseless allegations against me. It was no coincidence. Instead it was a blatant effort by its CEO Patrick Byrne to get me to back off from investigating securities law violations and other illegal conduct by him and his company.

It was only a matter of time before the law caught up with Mark Shurtleff's pattern of soliciting and receiving illegal bribes in return for favors. Yesterday, he was arrested by FBI agents and local law enforcement along with another former Utah Attorney General John Swallow. The charges yesterday concern other donors, not Byrne. He may be protected by the statute of limitations, or maybe not. His behavior needs to be e…

A Felon’s View of White-Collar Crime - Why Society is Very Vulnerable to Fraud

White-collar crime is more brutal than violent crime. The actions of one or a few corrupt public officials and corrupt businessmen can affect the livelihoods of thousands, even millions of people. Fraudsters use a combination of persuasion and deceit to execute their crimes. Unfortunately, most people are unaware of how easy it is for fraudsters prey on their behavioral and cognitive vulnerabilities. Furthermore, the amount of prosecutions of white-collar criminals recommended by the FBI has steadily declined over the last 20 years. The government devotes far more resources to battling street crime than white-collar crime. The current framework involving, compliance, audits, and law enforcement does little to protect investors from fraud.

Every person is capable of doing white-collar crime. At the 22nd Annual Conference of the Association of Certified Fraud Examiners Conference in San Diego California in 2011, Joan Pastor, PhD, Clinical Psychologist and Fraud Expert said, “We’re all c…

Overstock.com CEO Patrick Byrne Spying on People--Again

Fresh off the heels of a California Judge imposing a $6.8 million judgment against Overstock.com (NASDAQ: OSTK) for false advertising and unlawful business practices, the company is in trouble again. This time a class action complaint alleges that employees of the company cold called the cell phone numbers of prospective customers seeking to sell them insurance, secretly recorded those conversations without their permission, and deceitfully obtained "highly personal and private information." [Download Complaint]

According to the complaint:

Plaintiff alleges that Defendant [Overstock.com] continues to violate Penal Code § 632.7 by impermissibly recording its telephone conversations with California residents while said residents are on cellular telephones.
The complaint further alleges that:

9. On or about March 12, 2014, Plaintiff received a telephonic communication from Defendant on Plaintiff’s cellular telephone. During the conversation, Defendant attempted to solicit Plain…

On Twitter, Herbalife Uses "Herbalife Truth" To Tell A Lie

One of the main concepts I teach about financial crimes is that fraudsters seek to create false images of stature and integrity in an effort to gain the trust of their potential victims. Apparently, Herbalife (NYSE: HLF) is employing the same playbook used by fraudsters in an effort to create a phony image for itself.

Last week, the company claimed to be an "American made company" on a twitter account called "Herbalife Truth" which was created to counter allegations by Bill Ackman that it is running an illegal pyramid scheme. However, the cover page of Herbalife's 10-K report states plainly that its principle executive offices are located in Grand Cayman, Cayman Islands. Many of Herbalife's manufacturing facilities and its contract manufacturers are located outside the United States. See Herbalife's tweet and my response below (click on image to enlarge):




Originally, I wasn't sure whether to even write about this issue because it's totally irrel…

California Judge Rules Slaps Overstock.com With a $6.8 Million Fine For Defrauding Consumers

Updated

It's now official: Overstock.com (NASDAQ: OSTK) defrauded consumers. Late Friday afternoon, a California Judge issued a tentative ruling in favor of district attorneys from eight California Counties who had sued Overstock.com for engaging in fraudulent comparative pricing practices. The Judge imposed a civil penalty in the amount of $6.819 million and approved issuance of an injunction to prevent Overstock.com from continuing its deceptive practices. To make matters worse, Overstock.com will have to reimburse the State of California possibly millions of dollars for legal fees, investigative costs, and other costs. [Download ruling.]

Overstock.com will definitely appeal the ruling, adding to its already huge legal costs, a huge lose-lose proposition for the company. For instance, last quarter the company reported a $2 million increase in legal fees resulting in large part from the "defense of a case brought by district attorneys in eight California counties."

Overs…