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CLASS-ACTION SUIT ACCUSES NU SKIN OF OPERATING A PYRAMID SCHEME

Published: Thursday, Sept. 19 1991 12:00 a.m. MDT

A former Nu Skin International distributor in California filed a lawsuit against the Provo-based multilevel marketing company last month, accusing it of operating a pyramid scheme.

The suit, filed Aug. 28 in U.S. District Court in San Francisco as a class-action complaint, calls Nu Skin "essentially a clone" of the now-defunct Cambridge Diet plan, another multilevel company in which top Nu Skin distributors and an executive were involved.The suit claims Nu Skin violated federal securities laws and the Racketeer Influenced and Corrupt Organizations Act. The 43-page complaint further accuses the company of fraud, false advertising and unfair business practices.

The complaint estimates Nu Skin's more than 100,000 independent distributors lost more than $75 million in the company.

"It's full of inaccuracies," said Nu Skin spokesman Jason Chaffetz. "It's as if they took another case and plugged the Nu Skin name in." When asked what that meant, Chaffetz would not elaborate.

Steven J. Lund, Nu Skin executive vice president, said it's "absurd" and "ludicrous" for the complaint to say that 100,000 distributors are unhappy and were bilked out of $75 million.

Nu Skin is a multilevel marketing company which sells skin-care, hair-care and nutritional products through independent dealers in the United States, Canada and Hong Kong. Regulatory agencies in at least eight states, including Utah, are reviewing the company as a result of complaints about Nu Skin's business practices. The federal Securities and Exchange Commission also has contacted Nu Skin for information.

The law firm Lieff, Crabaser & Heimann filed the complaint on behalf of Patricia Arata, a former Watsonville, Calif. distributor. Arata claims she lost $4,000. It is the first lawsuit filed by a distributor against Nu Skin.

Nu Skin attorneys are studying the lawsuit.

"We will have a more detailed response following a complete review of the complaint," Lund said.

"Despite lip service to products, the true structure of Nu Skin is a classic pyramid scheme in which members/distributors focus their efforts on recruiting new distributors rather than on selling products . . ." the suit states.

Chaffetz called Nu Skin a "work program" in which dealers are rewarded for selling products, not simply signing up new recruits.

The San Francisco complaint represents only one distributor who felt she had been misled by another distributor, not the company, Lund said.

"Nu Skin genuinely regrets that this distributor is disappointed," he said.

Attempts to reach Arata were unsuccessful.

Named in the suit as defendants are Nu Skin founder Blake M. Roney; Keith Halls, director of finance; Clara McDermott, a top distributor, and Lund.

The suit claims Roney was involved in Cambridge. But Lund said that's "completely devoid of truth."

McDermott, however, made millions of dollars selling Cambridge before the company declared bankruptcy.

And a biographical sketch of Nu Skin vice president for corporate services Sandie N. Tillitson states she was "instrumental" in developing Cambridge, "earning $1.8 million in two years. . . . "

Lund also objected to the suit stating that the Michigan attorney general's office filed a cease-and-desist order against Nu Skin. He said the claim was false.

In March, Michigan Attorney General Frank Kelley filed a notice of intended action against the company. A spokesman for Kelley said Wednesday the notice essentially calls on Nu Skin to act within the law.

"They can still operate. They just can't operate illegally," said Chris De Witt.

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