SEC alleged firm's Brazilian unit paid $1M in bribes to sell unregistered products in Brazil

Nature's Sunshine Products Inc. agreed to pay $600,000 in civil penalties Friday to settle federal charges brought by the Securities and Exchange Commission that the Provo company's Brazilian subsidiary allegedly paid more than $1 million in bribes to Brazil's customs officials and government officials so it could circumvent import restrictions on products sold to its largest foreign market in the late '90s.

The SEC, in court documents filed Friday with the U.S. District Court in Salt Lake City, alleged that the nutritional supplements maker violated the Foreign Corrupt Practices Act when its Brazilian unit made a series of cash payments in 2000 and 2001 to Brazil's customs brokers and government officials so it could import unregistered nutritional products into the country, and then falsified its books to hide the payments.

According to the suit, the Brazilian subsidiary wasn't able to register many of Nature's Sunshine's products to legally sell them in Brazil because of regulatory changes that resulted in many of the company's supplements being classified as medicines. As a result, the company's sales in Brazil dramatically declined, the suit said.

To circumvent the import restrictions, the Brazilian subsidiary made undocumented cash payments, which were typically booked in its accounting records as "importation advances," the SEC complaint said.

The Brazilian unit allegedly characterized these cash payments as legitimate import expenses, and Nature's Sunshine failed to disclose them in its filings with the SEC, the suit said.

The company also was accused of violating federal securities laws when it filed misleading Forms 10-Q for the quarters ended March 31, 2000; June 30, 2000; Sept. 31, 2000; March 31, 2001; June 30, 2001; and Sep. 31, 2001; and Forms 10-K for the fiscal years ended Dec. 31, 2000; and Dec. 31, 2001.

The SEC complaint also alleged that Nature's Sunshine's president and CEO Douglas Faggioli, 54, and its former Chief Financial Officer Craig D. Huff, 53, violated federal securities laws when they failed to adequately supervise management and other personnel who were directly responsible for its books and records and internal controls related to the registration of its products in Brazil.

Under the settlement, Faggioli and Huff each agreed to pay a civil penalty of $25,000. Both men and the company settled without admitting or denying the SEC's allegations.

Nature's Sunshine, in a statement on Friday, said the complaint does not allege that Faggioli, Huff or any other company employee knew of the bribes, and that it believes that all government investigations relating to the Foreign Corrupt Practices Act violations have been fully resolved.

Nature's Sunshine disclosed in July 2007 that the SEC subpoenaed and the U.S. Department of Justice requested documents related to an internal investigation of its foreign operations by the company's audit committee.

According to several Nature's Sunshine shareholders in an ongoing lawsuit against the company over alleged insider trading and securities law violations, an investigation by its former auditor, KPMG LLC, found evidence showing that Faggioli knew of alleged fraud in his company's international operations, and yet signed two letters to KPMG in March and August 2005 stating the contrary.

KPMG resigned in 2006 after it found that Nature's Sunshine failed to take adequate remedial action, even after its investigation uncovered "control weaknesses" in its top management.

But according to Friday's statement, Nature's Sunshine "anticipates no action by the Department of Justice in the previously disclosed investigation relating to these events."

The company retained Deloitte & Touche LLP as its new auditor, and has "devoted enormous resources to coming into complete compliance with its financial reporting obligations and ... remediating all material control weaknesses related to its financial reporting," the statement said.

To that end, Nature's Sunshine has hired a new chief financial officer, Stephen Bunker, as well as a new general counsel and chief compliance officer, Jamon Jarvis. It also recently added five new independent members to its board of directors and has reconstituted the audit committee of the board of directors with new independent directors.

The company has more than 1,000 employees and 730,000 distributors globally.