MLM Legislation Ignites Short Sellers

Excerpt from our Wall Street Breakfast, a one-page summary of this morning's key market-moving and stock-moving stories:

Why Short Sellers Want to Crash the Tupperware Party [New York Times]

Summary: Multilevel marketing companies such as Tupperware, Avon, Nuskin, Herbalife and Pre-Paid Legal are facing possible legislation that would force them to tell prospective salespeople about sales-force failure rates and current litigation. The law would also require a one-week waiting period before new salespeople can begin working. Although the legislation is expected to take at least 2 years to gain approval, MLM companies are already getting nervous and short sellers are getting excited. The latter have been actively encouraging Congress to pass the law, in hopes of sinking the companies' stock prices and reaping significant profits. Avon currently has 11.3 million shorted shares, up 44% since April, while Tupperware has 3.9 million, up 77% since the spring. Analysts predict a significant drop in sales-force recruitment should the legislation pass.
Related links: Commentary: The Long Case for Pre-Paid Legal Services • Avon Misdirects Ad Spending • Brutal Honesty At Nu Skin Enterprises • Earnings conference call transcripts: Avon Q3 2006,
Potentially impacted stocks and ETFs: Tupperware (TUP), NuSkin Enterprises (NUS), Pre-Paid Legal (PPD), Avon Products (AVP), Herbalife Ltd (HLF) • ETFs: iShares Dow Jones U.S. Consumer Goods Index (IYK), Consumer Discretionary Select Sector SPDR (XLY).

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