Shares of e.l.f. Beauty (NYSE:ELF) are in full focus following Spruce Point’s publication of a short report on the vegan makeup company. The short seller believes that e.l.f.’s relationship with marketing firm Movers+Shakers is highly problematic due to its ties with sex cult NXIVM. Notably, e.l.f.’s recent TikTok marketing campaign formulated in collaboration with Movers+Shakers has been a major success for the company.
NXIVM leader Keith Raniere was sentenced to 120 years in prison back in 2020 for charges including sex trafficking and racketeering. Spruce claims that the founders of Movers+Shakers are former coaches and recruiters for NXIVM and may still sympathize with the group.
“While it is important to recognize that neither of Movers+Shakers founders were alleged to have
committed, or have been charged with, any wrongdoing, we find alarming evidence to suggest that Movers+Shakers and/or its founders may have continuing sympathy and/or affiliation with the teachings of NXIVM and former members who continue to support both Raniere and the cult,” said Spruce.
ELF Stock: Spruce Point Issues Short Report
Spruce points out that Movers+Shaker’s message of “Spreading Joy” may relate to NVIXM’s message of the “Science of Joy.” Since collaborating with Movers+Shakers, e.l.f. has used the word “joy” several times in its public relation announcements. The firm goes on:
“Even worse, ELF’s Chief Marketing Officer frequently perpetuates the use of ‘badass’ in relation to women, a term associated with NXIVM’s Dominus Obsequious Sororium (‘DOS’) subcult which was responsible for branding women, creating master/slave relationships between members, and what law enforcement alleged was forced sexual slavery.”
As a cruelty-free makeup company, public image and integrity is extremely important for e.l.f. The company sold 60% its products through Target (NYSE:TGT), Walmart (NYSE:WMT) and Ulta Beauty (NASDAQ:ULTA) as of March 31. This could present a major issue for the company if any of these retailers decide to pull e.l.f. products off of their shelves. Furthermore, e.l.f. has been subject to ethical and moral issues in the past, such as accusations of using sanctioned products from North Korea and having a board member sentenced to prison due to college admissions fraud.
ELF shareholders don’t seem to putting too much weight on the short report, as ELF is in the green today. Spruce ultimately believes that e.l.f. could fall by 45% to 65% if its distribution partners or customers conclude that the company is collaborating with a market firm with ties to NVIXM.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
