Summer of 1991, NuSkin Lawsuit

It took NuSkin many years to become truly successful; but by the Summer of 1991, we were in full momentum across the country! We were one of the biggest MLM’s company’s and were growing at an astronomical rate. By that summer, NuSkin was rapidly growing across the USA and many people were talking about us on TV and were using the products. We had finally arrived! We even had a former President of the US speak at our convention.
Little did any of us know it was the peace before the storm. It was coming, coming quickly, and when it hit, it was one of the worst storms I have ever seen!

In August of 1991, the “USA Today”, on page 2 carried the headline, “Arata vs. Blake Roney, Keith Halls, Steve Lund and NuSkin”. No one at NuSkin knew about the article or the lawsuit or anything until I received a phone call from my mother the day it appeared in the paper. She called and was crying; she was worried that something was wrong and I was in trouble. If it were in the newspaper, it must be true, right?

Arata had filed a lawsuit against us, claiming that NuSkin was a pyramid scheme and she wanted all of her money back. Within days, it became a class action suit, which was gathering steam. The suit was originally filed in Michigan, and soon, all of the Attorney’s General (AG) in the individual states of the USA had joined the suit. Together, they were seeking damages of over 80 million USD.

I assured my mother that all was well, that we had done nothing wrong, that it was merely a person seeking money. But she was crying and scared. I calmed her, because I knew we were in the right.

However, deep inside of me, I was scared. I knew we were completely in the right and perfectly legal, but it seemed as if someone or some company or companies were trying to close us down. The Arata lawsuit became one of the biggest cases against the network marketing industry. It seemed as if the US Government was bound and determined to close down the industry and pulled out all of the ammo they could think of. In the end, it turned into one of the biggest case in Network Marketing history that helped to legitimatize the industry. It cost us owners over 50 millions of dollars; I was 33 when it began and I felt like aged 10 years in the next few months.

Since NuSkin had grown large rather quickly and since we were all young, Barbara Walter’s, the famed news reporter, sensed blood and televised a very negative one sided report against us. In July, we were the most popular MLM Company throughout the USA. By August, thanks to the lawsuit, the 50 states AG’s, the US government and also Barbara Walters, the sentiment in the entire country was against network marketing and especially NuSkin.

Our company sales dropped quickly. In fact, our US sales dropped from over 500 million a year, to about 100 million. Our distributors were leaving in droves, wondering if we were legal or not.

To make matters worse, our legal bills were astronomical. We were determined to prove to everyone that the industry was legitimate and also that NuSkin was innocent. While the attorney’s bills were growing, our costs were eating up all of the cash we had. I had ordered product when the company sales were growing and now the bills were now due. I was working nearly 20 hours a day, to make sure that all of the bills were paid while also begging our suppliers to work with us. I told the Board that cash wouldn’t last much longer.

We had saved 20 million USD and were planning on using that money to open Japan with.

As a company, we had never been in debt. Since day one, one of our goals was to keep the company free of debt. We didn’t owe anyone, anything. I am sure glad we didn’t at that time, because we simply couldn’t have paid.
Then the day came. We had about 7 – 10 days of cash left, at best. We had never borrowed money, now no one would have loaned us money.
We had a Board meeting of all of the owners. Blake, Steve and I had kept everyone abreast of the situation, but now it was time to have an emergency meeting. I explained the cash problem; everyone knew why it was happening. Blake, Steve and I, expressed our belief that if we could just open Japan as we had planned, things would be fine. We had saved 20 million for the opening of Japan. We wanted to send the money and open the country, but we were out of cash.

Blake then asked the owners to loan back the money we had made, so we would have enough cash to get us through the next few months. He didn’t demand it, nor require it. He asked us to.

I had worked at NuSkin for over seven years. The first two, none of the owners made any money. Over the next five years, my wife and I had lived frugally and carefully saved money. I had been able to save quite a bit of money. Every time I got a bonus check or a dividend check, I saved it. Now, all of the money I saved, I was being asked to loan back. He didn’t force anyone, he just simply asked us to help in this time of crisis. There was no guarantee we would be paid back. If we weren’t, well I would start over again.

In reality, it was a very easy decision for me. I wasn’t going to quit, I wasn’t going to leave and I was going to make sure that I did everything I could to help in this time of crisis. We put our money in!
I then watched as Blake, Steve and the other owners, loaned back the money they had made. We wouldn’t quit! We had all been through too much together and knew our future was bright.

Within 6 months, the Courts ruled in our favor and just as importantly, in the industry’s favor. We began to grow in the US again. Japan sales topped 250 million in that first year. Within 5 years, NuSkin had one of the most successful IPO’s on Wall Street.

Seven people didn’t quit; a major bump in the road was removed and NuSkin became the giant they were destined to be.

Comments are closed.