Grand Prairie charity was paid to funnel funds

Fort Worth Star-Telegram/December 22, 2006
By Danny Robbins

A controversial dietary supplement company channeled money through a Grand Prairie charity because the company didn’t want to be involved in directly paying for a research project, according to the researcher who received the grants.

Grants totaling $228,000 from the Fisher Institute for Medical Research in 2003 and 2004 funded a study for Metabolife International, according to the researcher, Gilbert Kaats.

Metabolife wanted to test a new ephedra-free product but required that the funding be routed through a nonprofit organization, he said.

In return, he said, Metabolife gave the Fisher Institute an amount equal to the grants plus an additional sum.

The institute received payments from Metabolife totaling $240,000, netting the charity $12,000 from the deal, according to its records.

Charitable organizations cannot function as “pass through” entities between for-profit companies, said Frank Sommerville, an Arlington attorney who deals with nonprofits. The reason, he said, is that such transactions benefit companies seeking concealment and do not serve a charitable purpose.

“I caution my charities on that all the time,” he said.

Metabolife was one of the country’s most notorious sellers of supplements containing ephedra, an herbal stimulant linked to heart attacks and strokes. At the time of the grants, the San Diego company was facing hundreds of personal-injury lawsuits and was under criminal investigation on accusations of tax evasion and making false statements to the Food and Drug Administration.

Metabolife began selling ephedra-free products after the federal government announced in late 2003 that a ban on the sale of the stimulant would go into effect the next year. But the company ceased operation after mounting losses forced it into bankruptcy in June 2005.

Ronald Miller, the Fisher Institute’s attorney and a member of its board, did not respond to an e-mail last month seeking a response to Kaats’ comments.

On Wednesday, he gave the Star-Telegram some of the charity’s records but declined to answer questions.

Efforts to contact numerous former Metabolife executives were unsuccessful.

The Star-Telegram reported last month that the Fisher Institute has focused for years on funding and publishing studies showing the value of the supplements developed by Mannatech Inc. while the institute’s research director, Dr. H. Reginald McDaniel, has received millions of dollars in stock and cash from the Coppell-based company.

Established as an economic think tank in the 1970s, the organization assumed its new purpose after McDaniel, a Mansfield physician, took control in the late 1980s or early 1990s.

Since 2000, the Fisher Institute has made grants of $171,000, $57,000 and $5,000 to Research Foundation Inc., a San Antonio company directed by Kaats that specializes in research on weight-loss products, according to the charity’s filings with the Internal Revenue Service.

Kaats said the two largest grants were issued after Metabolife approached him about doing a study and asked that it be funded through a nonprofit. He said he gave the company several options, one of which was the Fisher Institute.

“We didn’t know what the hell the reason was” for Metabolife’s insistence on funding the research that way, he said. “I couldn’t figure that one out — still can’t.

“You’d think they’d give [the funds] to us directly, but they didn’t.”

Nothing was ever published, Kaats said, because the study didn’t produce positive results.

In its 2003 annual report, the Fisher Institute stated that it had entered into an “obesity research agreement” with Metabolife and Kaats’ company. A year later, it noted the completion of “the obesity study related to Metabolife supplements.”

The charity filed paperwork with the IRS showing that it received $180,000 from Metabolife in 2003 and $60,000 in 2004.

At the time of its dealings with the Fisher Institute and Kaats, Metabolife was in damage-control mode on several fronts, company observers said.

“Their name was mud, or fast becoming that,” said Bill Gurley, a professor of pharmaceutical sciences at the University of Arkansas.

The tax-evasion case has since resulted in guilty pleas by the company and one of its founders, William Robert Bradley. In his plea agreement, Bradley acknowledged that he used a variety of schemes, including utilizing a charitable organization that he controlled, to conceal and disguise income.

Kaats said the $5,000 grant he received from the Fisher Institute was for his analysis of data related to children with attention-deficit problems who used Mannatech’s supplements, known as glyconutrients.

Kaats’ relationship with the institute and Mannatech dates to the company’s founding in the mid-1990s. Three articles by Kaats citing the positive effects of glyconutrients in losing body fat, increasing bone density and improving general health have appeared in the institute’s journal, Proceedings.

In 2002, Kaats gained notoriety as a result of providing research and serving as a spokesman for Mark Nutritionals, the San Antonio company whose product, Body Solutions, was marketed on the premise that customers could lose weight while they slept. He was one of the defendants in a lawsuit filed by Texas Attorney General Greg Abbott accusing the company of false claims, but he ultimately was dismissed from the case.

Abbott requested the dismissal after Kaats filed an affidavit with the court in which he promised to make several changes in his business practices. Kaats stated that he would no longer serve as a media spokesman for companies for which he does research and that he would disclose “clearly and conspicuously” the nature and purpose of any remuneration he receives.

Kaats, who has a doctorate in psychology, entered the field of weight-loss research after the Texas State Board of Psychologists revoked his license in 1982 because he had a sexual relationship with a patient.