GNC shares plunge after report of Fed investigation into supplement industry
The government announced criminal indictments against two dietary supplement companies and their executives on Tuesday as it intensified a crackdown on the industry amid concerns that potentially dangerous products are being sold to consumers using deceptive marketing.
The case against Dallas-based USPlabs, S.K. Laboratories Inc. and five of their executives was the culmination of a yearlong sweep of the industry that resulted in criminal and civil actions against 117 supplement manufacturers and distributors, the Justice Department said.
USPlabs and S.K. Laboratories, which is based in Anaheim, Calif., manufactured and marketed weight loss supplements, including Jack3d and OxyElite Pro, that were sold nationwide.
Shares of several large supplement companies, including GNC Holdings Inc., were pummelled when news broke that the Justice Department was planning to announce an investigation of the supplement industry. GNC shares fell 25 percent and hit a new 52-week low in early afternoon before recovering to close down $2, or 6 percent, to $29.05.
GNC, the nation’s largest retailer of supplements, wasn’t charged or named in any of the actions announced Tuesday. The company does sell products from the companies that were indicted.
The Pittsburgh-based company said it is cooperating with the government investigation, but did not say if it planned to stop selling USPlabs’ products.
“GNC is committed to maintaining the trust and confidence of our customers, and we have rigorous policies and procedures in place with respect to third party vendors and suppliers to ensure that they meet the highest standards of compliance and accountability,” the company said in a written statement.
USPlabs and S.K. Laboratories were accused by the government of marketing supplements as all natural even though they contained synthetic chemicals that were imported from China. USPlabs lied about the source and nature of the ingredients in its products, the government alleged.
“The USPlabs case and others brought as part of this sweep illustrate alarming practices the department found — practices that must be brought to the public’s attention so consumers know the serious health risks of untested products,” Ben Mizer, principal deputy assistant attorney general and head of the Justice Department’s civil division, said in a written statement.
OxyElite Pro was implicated in an outbreak of liver injuries, the Justice Department said, alleging that the company continued to sell the supplement after promising in October 2013 that it would stop. A search of GNC’s website on Tuesday found eight USPlabs’ products for sale, including the weight-loss supplement Jack3d, but not OxyElite Pro.
GNC has been targeted by attorneys general in two states over allegations that some of its products contain illegal ingredients or were impure.
In March, the company reached a deal with New York Attorney General Eric Schneiderman to test its herbal supplements to confirm their authenticity. The deal was made when Schneiderman’s office sent letters to GNC and other retailers in February, alleging that store brand herbal supplements were not what they said they were.
And last month, GNC was sued by Oregon Attorney General Ellen Rosenblum, who accused the company of selling supplements containing illegal drugs. GNC has said the suit is “without merit” and vowed to defend itself.
Alex Nixon is a Trib Total Media staff writer. Reach him at 412-320-7928 or [email protected].