Saturday, October 27, 2012

Oh Those Guys! Nu Skin

Joe Nocera at the NYT has a typically crisp and professional piece up this morning about yet another company whose main business appears to be cozying up to the powerful and well-connected so as to enhance the cozyer's private gain.  In this  case the company is a peddler of skin-care products and the ranks of the "rich and powerful" conclude the fellah who wants to be the Republican President of the United States.

The name of the outfit is "Nu Skin," and it took about five seconds before the bell went off and I muttered "oh those guy!"    Those guys indeed.  Travel back to me now if you will to the fall of 1996, when I picked up a visiting gig at Cardozo Law School on Fifth Avenue just above Washington  Square (thanks, David!).  My brief included the basic course in business associations.  It was not part of my regular portfolio but I figured I could handle it and indeed as I recall, I brought it off well enough.  

But about six weeks into the semester, it sank in on me that if you're going to teach the chillun' anything about the Corporation in American Life, you really ought to show them a 10-K or an S-1--an annual report or a prospectus--so they can get some sense of how the money moves.   One day I uttered my insight in class and added: look, one or more of you must work in a financial printing house--see if you can scare me up a stack of samples that we can use for discussion.

Sure enough, a couple of days later a nice lady showed up at my door with a crate, and you know where this is going: Nu Skin.  A public offering of stock.  I dove in with curiosity and enthusiasm.

Boy, what an eye-opener.  Although in fairness, I don't remember anything about Ponzi multi level marketing schemes or unsupported product claims, the stuff of the Nocera piece.

What I do remember--and I grant I am deploying a 16-year-old recollection, but it's pretty vivid--what I do remember was what looked to me like one of the most brazen displays of self-dealing I'd ever seen.  The prospectus, as I remember it, said in essence: if you give us your money, we will pass it on to an unnamed third person who may (heh!) have some relationship to the principals of this company.  If he makes a profit, he may give some back.

Hoo hah, are we talking teaching moment, or what?  I've long marveled at the essence o f the American investment regime: we give our hard earned dollars to total strangers and expect them to behave with it.  The whole point of securities law is to try to impose some limit on the recipient so as to keep him from just flipping out his cigarette lighter and setting fire to the stuff.  Here was a scheme that seemed tailor-made to make sure that those protections didn't do their job.

I paid no attention to Nu Skin after this particular episode.  I do see from a quick check at Yahoo Finance  that anyone who wanted to take a flutter on Nu Skin could have bought it (on Nov. 22, 1996) for $30.88 an ridden it all the way down (by Dec. 1, 2000) all the way down to $4.75.  Would that have been the moment when Mitt Romney was trying to peddle them as a sponsor to the Salt Lake Olympics?  Whatever.  In any event, then and now this seems to be one skin that shows up already ribbed and lubricated.

No comments: