The enforcement division of the Securities and Exchange Commission threatened Friday to take action against Mannatech Inc., the Coppell-based maker of nutritional supplements, citing its conduct in firing an accounting firm last year.
The threat, in the form of a Wells notice, was sent to the company, its chief financial officer and the chairman of its audit committee, according to Mannatech.
The Wells notice indicates that the SEC's enforcement division plans to ask the commission to begin cease-and-desist proceedings against Mannatech. However, the notice gives Mannatech a chance to defend itself and possibly halt further action.
Mannatech's SEC problems are on top of a complaint filed by the Texas attorney general's office last year. In July 2007, the attorney general filed a lawsuit accusing Mannatech of exaggerating the therapeutic benefits of its products for people with cancer, Down syndrome, cystic fibrosis and other serious conditions. That suit is pending in Travis County District Court.
Mannatech CEO Wayne Badovinus acknowledged last quarter that dealing with the attorney general's complaint, as well as related shareholder lawsuits, was taking a financial toll on the company.
The Wells notice indicates that the SEC is looking into the "timing and completeness" of Mannatech's October 2007 firing of accounting firm Grant Thornton LLP. The SEC requires companies to notify it promptly when an auditing accountant is terminated.
In a statement issued Friday to The Dallas Morning News, Mannatech said: "This action has nothing to do with the integrity of the company's accounting statements." The company said it is planning to make its case to the SEC.
In most cases, a company has five days to submit a Form 8(K) document to the SEC when it changes auditors, said James Smith, a certified public accountant and managing partner at Smith, Jackson, Boyer & Bovard of Dallas.
Mannatech fired Grant Thornton on Oct. 18 after the accounting firm demanded that Mannatech either remove chairman and founder Sam Caster from all responsibilities or find a new accountant.
Mannatech chose to fire Grant Thornton. On the same day, Mannatech hired BDO Siedman LLP as its new accountant.
At the time, Mannatech issued a news release saying there were no disagreements with Grant Thornton on accounting principles or practices.
Days later, an SEC staff accountant sought clarification on the wording of the announcement, according to SEC documents, which also show that Mannatech tried to answer the SEC's questions then.