State suit says Mannatech runs 'scheme'

Fort Worth Star-Telegram/July 6, 2007
By Danny Robbins

Texas Attorney General Greg Abbott sued Mannatech Inc. on Thursday, claiming that the Coppell-based company is engaged in an illegal scheme to sell its dietary supplements as cures for cancer and other diseases.

"Aided by an army of multilevel sellers and their fictitious claims about its products, Mannatech has aggressively marketed supplements to countless unwitting purchasers," Abbott said in a statement. "With today's enforcement action, the Office of the Attorney General seeks to shut down an elaborate scheme to defraud innocent consumers across the nation."

The suit, filed in state district court in Travis County, contends that the company has used a variety of tactics to allow its supplements to be sold as cures for a multitude of diseases and conditions. It is illegal to make such claims for products that have not received federal approval to be sold as drugs. The suit describes the Mannatech sales efforts as a "deceptive scheme for monetary gain" and notes that the publicly traded company earned more than $400 million in 2006.

Calls to a company spokesman Thursday afternoon were not returned.

Also named as defendants are Sam Caster, Mannatech's chairman and chief executive; H. Reginald McDaniel, a Mansfield physician long tied to the company; and two charitable organizations with company links. The defendants are charged with violating the Texas Deceptive Trade Practices Act, which can result in civil penalties of $20,000 per violation. They are also accused of violating the Texas Food, Drug and Cosmetic Act, which can result in penalties of $25,000 per violation.

Mannatech's supplements, known as glyconutrients, are said to provide consumers with certain sugars missing from modern diets. The products are sold through multilevel marketing, allowing buyers to create lucrative "downlines" by selling to others.

The company's quick rise has earned it a variety of accolades, including being named in June to BusinessWeek magazine's list of "hot growth companies." Mannatech stock (ticker: MTEX) closed up 10 cents at $16 Thursday; Abbott's announcement was made late in the day.

Abbott's suit represents a major blow to the company, which has steadfastly stated that it operates within all state and federal regulations.

Hudson Freeze, professor of glycobiology at the Burnham Institute for Medical Research in La Jolla, Calif., said Abbott's suit gives voice to issues that he and others in his field have long believed.

"I'm glad to see this come home to roost and be taken seriously for what it really is -- a deception that exploits sick people," he said.

The Star-Telegram, in stories published last year, detailed many of the practices that form the basis of the suit.

The suit states that the company tries to distance itself from illegal claims while in fact enabling the system, using alternate Web sites, third parties, testimonials and "the facade of a disciplinary policy" for sales associates.

Testimonials about how the supplements can successfully treat various illnesses are recorded on video at corporate events so associates can use them, according to the suit. Materials making illegal claims are sold to associates at these events as well, the suit states.

The suit also describes how testimonials have been stored on a password-protected part of the Mannatech Web site, how the company has declined to take action against associates making illegal sales pitches on their own Web sites, and how a Web site owned and operated by a prominent vendor at corporate events sells material making illegal claims.

The testimonials and promotional materials detail miraculous cures and transformations for people dealing with such conditions as autism, cancer, Down syndrome and toxic shock syndrome.

Caster, according to the suit, has been a major cause of the illegal conduct, refusing to allow serious enforcement action to be taken against high-level associates.

"To the contrary, defendant Caster has orchestrated the illegal scheme ... and has hindered the efforts of any person attempting to rein in the practices of Mannatech and its associates," the suit states.

Before founding Mannatech in 1994, Caster directed Eagle Shield, a company that was twice sued by the attorney general for engaging in deceptive selling.

McDaniel, a pathologist who served as Mannatech's medical director until 2002, is cited in the suit as having made illegal claims on speaking tours and prescribing certain dosages of Mannatech products for various diseases.

The suit also focuses on the activities of two nonprofit organizations, MannaRelief Ministries and the Fisher Institute for Medical Research.

MannaRelief, created by Caster and his wife, Linda, is largely used as a marketing tool to promote Mannatech products as a means of curing diseases, according to the suit.

The Fisher Institute represents itself as an independent medical-research organization but is in fact controlled by McDaniel and his wife, Candace, for the benefit of Mannatech and its associates. The suit calls the organization, with an office in Grand Prairie, "little more than a sham charity with the sole purpose of providing 'scientific' support to the illegal health claims made about Mannatech's products."