Company may face AG action

Health supplement firm Mannatech declines to address allegations

Dallas Morning News/October 27, 2006
By Karen Robinson-Jacobs

The Texas attorney general's office is considering legal action against nutritional supplement maker Mannatech Inc. over claims the Coppell company allegedly has made about the health benefits of some products.

Mannatech has been under investigation since July 2005 by the Consumer Protection and Public Health Division for possible violation of the state's deceptive trade practices act, according to a memo from the attorney general's office.

"The likelihood of litigation filed by the attorney general's office exists," agency spokesman Tom Kelley said Friday.

Mannatech executives didn't respond to telephone and e-mail messages for comment. A woman who answered the phone in the chief financial officer's office said the company hadn't been notified of the investigation.

"We don't have anything to comment on," she said, declining to give her full name. "It's not our policy to comment on things that are not factual."

News of the potential legal trouble, first reported Friday morning on the MarketWatch.com Web site, sent Mannatech shares swooning. The stock lost $2.96, or 16.54 percent, to close at $14.94.

Mannatech is a "global wellness solutions company," according to its Web site, a "pioneer and world leader in the field of glyconutritionals," supplements made from "healthy sugars." It also markets skin care products.

Mannatech products are sold largely through a network of independent distributors, who help the company cash in on the booming market for nutritional supplements.

U.S. retail sales in the sector are expected to approach $5 billion this year, according to Packaged Facts, a division of MarketResearch.com.

Mannatech sales have more than doubled in the past several years, going from $128.7 million in 2001, to $389.4 million in 2005, according to a regulatory filing.

But "Mannatech has made unproven health claims about its products, such as the ability to cure or treat cancer and numerous other ailments," according to the memo from the attorney general's office.

"The claims being made are not approved by the Food and Drug Administration, making the claims potentially in violation of both state and federal law," the memo said. "There is also a concern that Mannatech does not disclose certain health risks associated with its products."

The Texas Department of State Health Services has contacted the attorney general's office "with similar concerns" about the company "and referred the matter to ... [the attorney general] for investigation and possible litigation," the memo said.

Doug McBride, a health services spokesman, confirmed that the department referred the matter to the attorney general "within the last couple of weeks," for "possible violation of the Texas Food, Drug and Cosmetic Act."

He declined to detail specific allegations. "When we refer something to the attorney general's office, we're not inclined to do anything that would jeopardize the investigation," he said.

The memo from the attorney general's office was written by public information coordinator Karen Rabon in response to a Freedom of Information Act request filed by a short seller. Such investors seek to profit when a company's stock price drops.

The memo disclosed the existence of the investigation in order to justify not providing the investor with other information.

The attorney general's office received the request on Oct. 3, and as of that date the investigation was continuing, the memo said. The attorney general "anticipated filing suit against Mannatech for those alleged violations," the memo said.

Mannatech, founded in 1994, has run into legal trouble before over claims about its products.

In 2005, Mannatech faced three class-action lawsuits in which shareholders accused the company of "knowingly allowing independent contractors to recklessly misrepresent the efficacy of our products," the company said in its regulatory filing. The suits, which have been combined, were filed in federal court in New Mexico.

Three individual suits filed in North Texas late last year and early this year made similar allegations.

"We believe we have retained experienced securities litigation counsel to vigorously defend us and our officers and directors," the company said in the filing.

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