Charity's links to firm raise questions

Fort Worth Star-Telegram/November 26, 2006
By Danny Robbins

As a proponent of alternative medicine and the driving force behind a Grand Prairie charity, Dr. H. Reginald McDaniel portrays himself as a lonely warrior battling the forces who consider drugs the only way to treat disease.

"Serving" is how the Mansfield physician often signs off on his correspondence.

The question is, Who's being served?

For years, McDaniel's charity, known as the Fisher Institute for Medical Research, has concentrated on funding and publishing studies favorable to the dietary supplements developed by Mannatech Inc., while he has received millions of dollars in stock and cash from the company.

The relationship between the institute and the network-marketing company, detailed in public records and other documents, raises the issue of whether the charity has been misused.

"The information you have shared with me about the relationship between Mannatech and the Fisher Institute does not pass the smell test," wrote Jan Soifer, an Austin lawyer who previously served as chief of the Texas attorney general's charitable trusts section, after examining documents provided by the Star-Telegram.

Under McDaniel's guidance, the institute has periodically published a journal devoted almost entirely to articles and studies portraying the potential effectiveness of Mannatech's products, known as glyconutrients, in dealing with various diseases and conditions. The journal, called Proceedings, has become a sales tool for Mannatech associates, who build "downlines" by persuading others to buy the company's products.

At the same time, McDaniel has accumulated substantial holdings in Mannatech, a publicly traded company that has seen its sales and stock price soar in recent years.

At least a portion of the Mannatech stock acquired by McDaniel was sold to him at a steep discount by the company's chairman and chief executive officer, Sam Caster.

McDaniel declined to be interviewed.

Caster did not respond to an interview request made through a company spokesman.

Mannatech, based in Coppell, has been under investigation by the Texas attorney general's consumer protection and public health division since July 2005 for allegedly making unsubstantiated health claims, according to an agency memo that became public last month.

Studying and publishing information about Mannatech products is part of the institute's focus, but not its sole purpose, said John McCuistion, an Irving financial planner who serves as the organization's president and CEO.

"Well, if I had to boil it down to percentages, I'd say there's probably a large focus on Mannatech," he said. "But we are interested in, and seek, other areas [of study].

"Dr. McDaniel has looked into requests that other people have made, as well as things that are of interest to him that don't have anything to do with Mannatech."

In addition to publishing Proceedings, the institute buys and redistributes books on health-related topics unrelated to glyconutrients, he said.

After a brief telephone interview, McCuistion referred further questions to the charity's lawyer, Ronald P. Miller of Dallas.

Miller did not respond to a series of questions sent to him by e-mail on Nov. 9.

In its past five annual filings with the Internal Revenue Service, the institute reported revenue totaling $2.1 million and expenditures totaling $1.9 million. It reported spending on "research support" and advising and consulting fees, but did not offer further breakdowns.

Tax-exempt nonprofit organizations operate under state and federal laws requiring that they serve charitable purposes and that they not be used to benefit any particular company or individual.

"It is highly inappropriate for a charity engaged in scientific research to conduct research substantially for one company," said Frank Sommerville, an Arlington lawyer who specializes in nonprofit-related matters.

Soifer wrote in an e-mail that in her opinion the Fisher Institute "is being used to enrich particular individuals" and "does not appear to be serving a public charitable purpose." Soifer forwarded her e-mail to Susan Staricka, the current head of the charitable trusts section.

A strange mix

The saga of the Fisher Institute involves a strange mix of a quixotic doctor, a network-marketing company and a charity that once served a totally different purpose -- it began as an economic think tank set up by a group that included former U.S. Sen. Phil Gramm.

McDaniel, 70, has long been known for his advocacy of glyconutrients and one of their key ingredients, aloe vera, as a potential treatment for cancer and AIDS.

While working as chief of pathology at DFW Medical Center in Grand Prairie, he became a consultant for Carrington Laboratories in Irving, a major manufacturer of aloe products.

His work during that period led to his being reprimanded by the Texas Medical Board for unprofessional conduct. The board came to its conclusion after hearing an allegation that McDaniel treated a patient at Parkland Hospital in Dallas without having privileges there. In its letter of reprimand, the board admonished him to comply with all laws and regulations "prior to your using experimental drugs."

From Carrington, McDaniel moved to Mannatech, aligning himself with the company in its formative stages in the mid-1990s and working as its medical director from 1996 to 2002.

After he left Mannatech, he began serving as medical director of MannaRelief Ministries, a charity directed by Caster and his wife, Linda. He has also continued speaking at corporate events.

A class-action lawsuit filed against Mannatech quotes an unidentified former executive as saying that McDaniel, while working for the company, sent out daily e-mails "prescribing" its products as cures for cancer and other diseases and was moved to MannaRelief because the Food and Drug Administration was developing a file on him.

Known in Mannatech circles as "Dr. Reg," McDaniel often portrays himself as David fending off the Goliaths of drug companies, medical schools and regulatory agencies in his talks and writings.

Recalling his appearance before the Texas Medical Board in a recent essay, he wrote:

"I was turned in to the Texas State Board of Medical Examiners by my own medical school dean to defend my license against charges of unprofessional and unethical conduct along with the unscientific practice of medicine.

"I kept my license because I was prepared, represented myself instead of using an attorney and knew I was working with the engineering and design created by the source of all life. I knew, 'When you are right, and you know you are right, you are a majority of one.'"

A change of direction

The Fisher Institute has been under the stewardship of McDaniel and his wife, Candace, apparently since sometime in the 1980s or early '90s.

Named after Sir Antony Fisher, a British entrepreneur who was a champion of free enterprise, the organization was incorporated in 1977 and focused originally on free-market issues and published books by economists, including Gramm.

The group's initial board of directors consisted of Gramm, then a professor at Texas A&M; Henry Gilchrist, co-founder of the Dallas law firm Jenkens & Gilchrist; and Sherrill E. Edwards, a Dallas businessman.

The change in the institute's direction is troubling for some Fisher-inspired economists, including John Blundell, director general of the London-based Institute of Economic Affairs.

Blundell has worked to have references to Fisher removed from the Fisher Institute's Web site and would like to see the organization change its name as well.

"It is so bizarre to hijack the name of a great man like Sir Antony and use it like this," he wrote in an e-mail.

McCuistion said changing the charity's name isn't necessary because few people associate it with the British entrepreneur, who died in 1988.

"Fisher is a very generic name," he said.

A history of the institute that has appeared in Proceedings states that McDaniel assumed control of the charity when it was "bequeathed" to him in 1981 by Edwards.

But Edwards' son-in-law, Tom Corboy, said he can find no record indicating that Edwards, who died in 1991, made such a bequest.

Corboy provided the Star-Telegram with a letter that was written by McDaniel to Edwards' widow, Virginia, shortly after Edwards' death in which he speaks of his plans to continue operating the institute. McDaniel described in the letter how Edwards battled cancer longer than had been expected, stating that perhaps the reason was an aloe product, acemannan, with which he was being treated.

He then noted that he was the "sole survivor" of the Fisher Institute's board and stated that he was trying to bring "new life" to the organization.

"If you have any files on the institute, I would like to have them," he wrote.

Corboy, whose wife, Shari, is Sherrill and Virginia Edwards' only child, said he was unaware what, if any, action was taken by Virginia, who died just months after her husband.

Edwards' family didn't know about McDaniel's involvement in the institute or its new mission until a call from the Star-Telegram led to the discovery of the letter, Corboy said.

In fact, he said, Edwards often stated that he hoped the charity would remain committed to its original purpose.

Corboy dissolved the institute through the Texas secretary of state two weeks after Edwards' death.

A year later, he said, he was contacted by McCuistion and told that the organization was in fact still operating and that the institute would file a lawsuit, the legal step necessary for reinstatement with the state.

Corboy said he did not contest the suit, which made no mention of McDaniel or a change in purpose, because McCuistion said the institute would continue Edwards' "good work."

Gramm, currently vice chairman of UBS Investment Bank, said through a company spokesperson that he hasn't been involved with the Fisher Institute since it was an economic think tank.

Gilchrist said he resigned from the institute's board in 1986 and gave its records to Edwards.

He said he was unaware of McDaniel or the institute's new mission until he received an e-mail from Blundell seeking information about the matter in 2005.

Gilchrist said he was shocked.

"My gosh, Antony Fisher had nothing to do with research on any dietary supplement," he said.

By law, a single board member can redirect a charity's mission on his own if there are no other surviving members, Sommerville said.

Taking an existing charity in a different direction instead of starting one from scratch has several advantages, he said. It eliminates the expensive and time-consuming process required by the IRS for establishing a nonprofit, he said. It also avoids the scrutiny that comes with that process, he said.

Next, a journal

After McDaniel took over, the institute began publishing Proceedings.

Most of the studies and articles that have appeared in the journal were conducted or written by individuals affiliated with Mannatech. In most cases, those connections are disclosed.

While some articles involved studies with multiple participants and control groups, many others have been simply "before" and "after" stories of wellness attributed to glyconutrients.

The most recent edition included an article by a naturopathic physician who described how he was treating a man hospitalized for severe burns.

The man refused skin grafts and antibiotics while continuing a regimen of glyconutrients, some of which were applied topically, according to the naturopath.

"Some of the nurses even became excited and supportive of his miraculous progress and began to help dress the wounds with the glyconutrient mixture," the naturopath wrote.

Copies of Proceedings are sold on a Web site, www.glycotools.com, devoted to providing material for Mannatech associates to use in their selling and recruitment efforts.

Paula McClellan, a Mannatech associate in Orlando, Fla., uses Proceedings as part of a program to sell the company's products to parents of children with attention deficit disorder.

"I show it to them at the very beginning, so they can see why Mannatech products are our products of choice," she said.

Some in the scientific and academic communities who have examined Proceedings say it has the appearance of a scientific journal, but does not meet the standards of such publications.

When Richard B. Kreider, a Baylor University professor who directs the school's Exercise and Sport Nutrition Laboratory, saw a copy of Proceedings, he thought it looked like "promotional" material.

"That, to me, looked like a kind of industry-type thing to try to put information out about the nutrient in one location," Kreider said.

The institute has also awarded cash prizes to writers who have had books or articles published reporting about "micronutrients," a word often used to describe Mannatech's products.

Four books and articles were cited as initial winners. All were generated by writers or editors with ties to Mannatech. Copies of the books and reprints of the articles also have been listed for sale on the "glycotools" Web site.

Accumulating stock

As the institute became oriented toward the validation of Mannatech products, McDaniel accumulated hundreds of thousands of shares of the company's stock, according to filings with the Securities and Exchange Commission.

In Mannatech's initial public offering, he was identified as holding 511,600 shares, 2.2 percent of the company's stock.

Four years later, in a proxy filing just after he left the company, he was listed as holding 521,050 shares.

In December 2004, McDaniel was allowed to purchase 180,000 shares from Caster at $2.66 a share.

At the time, the stock was trading at $19.59.

The gift, a $3 million windfall on paper, was characterized by Caster as a means of showing his appreciation for McDaniel's contributions to Mannatech by giving him an asset "through which he may pursue his ongoing passion for the research of glyconutrients."

If McDaniel retained all of the stock cited in the public disclosures, his holdings today would be worth $10.6 million. Mannatech has also made cash payments to McDaniel totaling $1.1 million, according to the SEC filings.

In what was described as a non-compete and confidentiality agreement, he received an initial payment of $90,000 upon his resignation, and monthly payments of $25,000 through January 2006.

Miller, the Fisher Institute lawyer, said he was unaware of McDaniel's Mannatech stock holdings, and then declined to answer further questions.

About the Fisher Institute for Medical Research

Named for: Sir Antony Fisher, a British entrepreneur and champion of free enterprise who established several economic think tanks based on his philosophy.

When founded: 1977.

Original board of directors: Phil Gramm, former U.S. senator; Henry Gilchrist, co-founder of the Dallas law firm Jenkens & Gilchrist; and Sherrill E. Edwards, Dallas businessman.

Original focus: Promoting free-market issues.

New name: Fisher Institute for Medical Research.

Primary focus now: Studies and articles relating to products developed by Mannatech Inc., known as glyconutrients.

How it changed: Dr. H. Reginald McDaniel, a Mansfield physician who became associated with Mannatech in its formative stages and worked as its medical director from 1996 to 2002, took control of the institute sometime in the late 1980s or very early 1990s. He now serves as its research director. His wife is its medical director.

Publication: A journal called Proceedings.

Reported revenue since 2000: $2.1 million.

Reported expenditures since 2000: $1.9 million.