Best World International fell by as much as 21 per cent at one point yesterday after a Chinese government regulator said it is cracking down on pyramid schemes.
China's State Administration for Industry & Commerce (SAIC) announced yesterday a new three-month campaign against recruitment by pyramid sellers.
Shares of Singapore-listed Best World International, which is a direct selling firm and beauty product distributor, closed down 12 per cent or 18.5 cents at $1.355, although they were down 21 per cent earlier in the trading session.
Best World told the Singapore Exchange in a filing yesterday that it was not aware of any information not previously announced regarding recent unusual trading activity.
Its fall mimicked the share performance of other firms with similar business models such as nutrition firm Herbalife; Nu Skin Enterprises, known for skin care; and health nutrition business Usana Health Sciences. Herbalife declined more than 5 per cent to close at a three-month low of US$62.42, Nu Skin dropped more than 7 per cent to US$56.01, its lowest close since May 31, and Usana fell 7.5 per cent to US$54.40, its lowest close since mid-April, Reuters noted.
The SAIC did not call out these firms specifically, but such "so-called multilevel-marketing businesses have faced allegations that they use a pyramid sales model", said Bloomberg.
Best World yesterday said the SAIC statement was widely anticipated in the light of recent reports on the drowning of a university student, "who allegedly fell victim to a certain pyramid selling scheme's advertisement posted on a popular recruitment website". The case is still under investigation, it noted.
The firm, which has over 400,000 members in 12 countries, added: "Although we hold a direct selling licence, we have not converted our business in China to direct selling yet." It said its DRs' Secret, Avance and Optrimax products can be bought at outlets and workshops, so the "statement has little or no impact on our China business".
A recent Maybank Kim Eng report on Best World said regulatory changes would be detrimental to direct selling in its markets, "similar to Indonesia's restriction on healthcare imports in 2009". The firm also faces "reputational risks caused by fraud or fake-product scandals for other direct-selling players or Best's members", said the report, and its failure to expand in China could hurt share price valuation.
Best World said its preparations for conversion to direct selling are in line with the SAIC's statement. New service outlets are also subject to approval, and are not within or near school compounds.
"Our membership criteria, upon conversion to direct selling, shall also not accept students, civil servants, police and military personnel and such," it said, adding that it is fully compliant with the rules and regulations of business operations under China's laws.