(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)
Yesterday, Reliv International (NASDAQ:RELV) may have approached the end of its California litigation. Reliv was accused of "failure to warn consumers that they have been exposed to lead from several of the company's nutritional health products. Lead is a chemical known to the State of California to cause cancer, birth defects and other reproductive harm." ~ Case: CIV1300429 Superior Court of the State of California
The notices of violation began in 2010. The complaint itself was filed in court on January 14, 2013, in a court action brought by Environmental Research Center ("ERC"), a non-profit corporation. A proposed stipulated consent judgment was later signed by Reliv's CFO and attorney. As usual, the defendant does not have to admit guilt. Nonetheless, according to the proposed consent judgment, as signed by Reliv's representatives:
- Civil penalties must be paid "pursuant to Health & Safety Code Section 25249.7(b)(1)"
- A portion of the above penalty is to be paid to the office of Environmental Hazard Assessment.
And most telling of all:
- "Since receiving ERC's Notices of Violation, Reliv has revised the formula for all of the covered Products to bring the lead levels in the Covered products that are manufactured going forward to below 0.5 micrograms per day, the level at which a warning would be required pursuant to Proposition 65." (Source: Proposed Stipulated Consent Judgment)
How can one bring levels below a required limit without implying that one had been above it?
According to the Marin County Superior Court Register of Actions, the judgment was signed in court yesterday (8/14/2013).
Reliv claims to be a research-driven and nutrition-centered company. How does one reconcile this with the recent litigation? For example, according to its 2012 10-K, Reliv claims that its own "internal research and development team has developed most of [its] products" and that its facility manufactures "substantially all of [its] nutritional products." If those declarations were sincere, how could Reliv get into such difficulties? How could it avoid responsibility? But then again, according to its SEC filed 10-Ks, Reliv spends less than 1% of sales on research and development. How surprised should we really be that it found itself in California court? (For more on RELV, see my previous article, Reliv the Hype.)