Nutrition for Life International Inc. said Thursday that the Securities and Exchange Commission is investigating the way the company distributes its wide range of health products, triggering a sell-off of its stock.
The stock fell $4 to close at $19 in trading of 261,500 shares on Nasdaq.
The inquiry seemed to be focused on the Houston-based company's "executive-level distributor program," it said.
The company develops health products such as nutritional supplements and weight management systems that are sold through a network of independent distributors.
A distributor may become an "executive" by generating cumulative sales volume of $1,000 to $1,500 through his sales organization. Executive status entitles a distributor to earn commissions on product sales generated by other distributors in his organization, the company said.
To join the program, a person only needs to be sponsored by an existing distributor and buy a "distributor success kit" from the company for $35.
Nutrition for Life President David Bertrand said the company had retained special counsel and will explain how it and its distributors conduct their business.
"Our program is similar in many respects to those offered by numerous other network marketing programs," Bertrand said. "We will continue to review all practices, policies and procedures, and will consider any changes which may be appropriate."
Nutrition for Life offers more than 250 products, including nutritional supplements, health foods, weight management items and skin-care products.
The SEC declined to say whether it is investigating Nutrition for Life.
In recent years, the agency has been cracking down on so-called multilevel marketing organizations, which can balloon to tens of thousands of members as customer-dealers buy products in part to obtain sales commissions generated by people who join after them.