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Why Natural Health Trends Corp. Stock Popped Today

By Steve Symington - Jan 13, 2016 at 4:46PM

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The wellness-products maker is fighting back against fraud accusations. Here's what investors need to know.

What: Shares of Natural Health Trends Corp. (NHTC -3.68%) were up 14.4% as of 3:00 p.m. ET Wednesday after the health and wellness products specialist denied allegations of a government investigation of its business in China.

So what: Natural Health Trends stock still has still fallen more than 30% over the past week after Chinese newspaper Toutiao reported it was being investigated for fraud by Chinese authorities for operating as an illegal pyramid scheme. In a press release Monday detailing select preliminary quarterly results, Natural Health Trends stated it was aware of the reports, but unaware of any investigation at the time. As a result, Natural Health Trends "initiated the process set forth in China's pertinent law to contact the website where the allegation was posted," and promised to disclose any verified information as it was received.

Things took another turn for the worse yesterday, when an additional posting appeared claiming the company's Beijing offices had been "raided."

Today, however, Natural Health Trends issued a press release stating it "strongly refutes false allegations made against it by U.S. and Chinese parties that appear to be working in concert with the goals of improperly influencing the market for the Company's stock and damaging the Company's reputation, brand value and business in China."

More specifically, Natural Health Trends now believes its accusers have been "aggressively pressing" Beijing City authorities to investigate the company. And regarding the so-called "raid," Natural Health Trends states its staff attorney and branch manager met with the Beijing Chaoyang District SIAC and Public Security Bureau at its Bejing office on Jan. 11, 2016. Noting two of the accusers were present at that meeting, Natural Health Trends insists the authorities advised "that there was insufficient evidence to warrant and investigation of the company."

Now what: "In the event of an investigation," added Natural Health Trends President Chris Sharng, "we would fully cooperate with the Chinese government. We have also had multiple discussions with U.S. market authorities regarding these matters and are working diligently to ensure the integrity of the market for our stock."

In the meantime, Natural Health Trends' board of directors authorized an increase in its existing share repurchase program from $15 million to $70 million. $10 million of that program has already been completed. 

Even so, if the persistence of Natural Health Trends' accusers is any indication -- and whether their accusations are true or not -- I fear the company's battle in this case isn't over yet. With investors' confidence already shaken, until Natural Health Trends completely nips this PR crisis in the bud, I'm content watching this drama unfold from the sidelines.

Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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