While no one admitted any wrong, two former officers of Nature’s Sunshine Products Inc. and the company have agreed to pay a total of $650,000 in civil penalties in connection with a Securities & Exchange Commission investigation of NSP’s Brazilian subsidiary. The Utah-based maker of nutritional supplements still faces a class-action lawsuit regarding the filing of financial statements with the SEC and the delisting of the company’s stock.
NSP said in a statement issued July 31 that its former COO and CFO “failed to adequately supervise Nature’s Sunshine management and other personnel who were directly responsible for the company’s books and records and internal controls.” The company neither admitted nor denied the SEC’s allegations.
From all accounts, NSP’s troubles related to its operations and regulatory filings, not the quality of its products. Nasdaq dropped the company in April 2006 because, according to the company, it had not timely filed its quarterly report on Form 10-Q for the quarter ended Sept. 30, 2005, nor its annual report on Form 10-K for the fiscal year ended Dec. 31, 2005. NSP’s accountants also resigned on March 31, 2006. The interaction between the company and accountants is captured in a behind-the-scenes article by Ethisphere.
The story goes back further, according to an SEC civil complaint filed in federal court. The SEC claimed that NSP operated a Brazilian subsidiary that paid Brazilian custom agents in that country to import unregistered NSP products during 2000 and 2001. That occurred after the Brazilian government reclassified some products as medicines. NSP was unable to re-register many of its products and sales declined dramatically.
To circumvent the new regulations, the NSP subsidiary made cash payments to Brazilian customs brokers, according to the complaint. The brokers handed some of the money over to Brazilian officials. The subsidiary then falsified its records to hide the nature of the payments.
The complaint was filed in federal court on July 31 of this year, the same day that the SEC announced the agreement with NSP and former officers Douglas Faggioli and Craig Huff. Faggioli was COO in 2000 and 2001, and was promoted to president and CEO in November 2003. The same and following year, the company was named to the list of 100 Best Corporate Citizens by Business Ethics Magazine. Neither Faggioli nor Huff no longer work for NSP, according to the company.