Texas Attorney General Hits Mannatech
With Long, Slow, Looping Right Hook They Should Have Seen Coming From Ten Blocks Down Main Street

July 7th, 2007The Attorney General's office of Texas has finally taken legal action against Mannatech, alleging they have violated state and federal health and safety codes as well as the state's own laws regarding deceptive trade practices.

Basically, Mannatech is being sued for making medical claims about their products. The law suit itself says the TX AG is only seeking a permanent injunction against the company "to prohibit Defendants from continuing to operate a food manufacturing establishment and to advertise, or offer for sale, and sell their products if they refuse or are unable to comply" with "required standards" (emphasis is mine). The suit also states, "Defendants should not continue to operate a food manufacturing establishment, advertise, offer to sale (sic), and sell its products in violation of the laws of Texas." While this language seems to indicate Mannatech can continue to fully operate as long as they abide by the law and discontinue making medical claims (that is, the permanent injunction is against making such claims about their products, not selling them), TX Attorney General Greg Abbott's own comments appear to be far more threatening. In a press release issued by his office he stated, "Texans will not tolerate illegal marketing schemes that prey upon the sick and unsuspecting. Aided by an army of multi-level sellers and their fictitious claims about its products, Mannatech has aggressively marketed supplements to countless unwitting purchasers. 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 AG's press release goes on to say that the enforcement action is the result of "a large-scale investigation" which revealed "Mannatech's scheme to exploit families, including those challenged by cancer, Down's syndrome, cystic fibrosis and other serious illnesses. According to investigators, exaggerated claims about the therapeutic benefits of Mannatech's dietary supplements and nutritional products were unlawfully used to increase sales."

The AG's enforcement action also asserts that "Mannatech's deceptive practices pose a health risk to seriously-ill consumers who may forgo traditional medical attention because of the company's false claims." Besides the injunction, the suit also seeks a fine of $25,000 per day, per violation of state law, as well as reimbursement for those who have purchased Mannatech products. As was reported in MarketWave Alert #80 (5/30/07), ABC's 20/20 program aired a segment featuring a woman who had chosen to forgo any traditional treatment of her cancer in lieu of taking Mannatech's Ambrotose product. MarketWave has also previously reported on an investor class action law suit against Mannatech alleging the company's stock price was artificially inflated due to their exaggerated disease treatment claims (Alert #51, 9/1/06), and on a negative Wall Street Journal article also claiming that the substantial sales success of Mannatech was due to the miraculous claims being made about their products (Alert #78, 5/13/07). In this WSJ article is was also reported that the Texas Attorney General's office had publicly revealed as early as last October that an investigation of "health-law violations" has been ongoing since 2005 and that they did "anticipate filing suit" against Mannatech.

Mannatech's President Terry Persinger has offered the only public response thus far, as follows: "We are aware of the situation and will be taking appropriate action to address any issues or concerns from the Texas Attorney General's office. We take matters of this nature very seriously and intend to cooperate to reach a resolution." Read the TX AG's press release HERE.

Read the recent Wall Street Journal article about this most recent action HERE. Read Mannatech's public response HERE.

Commentary: Mannatech will surely continue to claim, as is described in the AG's law suit itself, that they are somehow insulated from these claims because:

1) Renegade reps are making the claims, not the company;
2) The company itself clearly states their products do not cure or treat disease;
3) Reps are quoting third party scientific reports & studies;
4) Reps are stating personal testimonials;
5) Reps are talking about Ambrotose, a substance within Mannatech's products, but not Mannatech's actual products. Some of these defenses were eluded to by Mannatech Chairman and CEO Sam Caster during a recent interview conducted by ABC's television show 20/20 (video version is on YouTube).

As has been cited here in many Alerts before this one, and based on an abundance of case precedent, none of these excuses will get them off the hook. For evidence of this please review the following:
A) Dietary Supplements: An Advertising Guide
B) Dietary Supplement Enforcement
C) SeaSilver/Coral Calcium Conference Call
D) Medical Claims Conference Call
E) Network Marketing Product Claims

As of today, 07/07/07, a Google search for the registered trademark "Ambrotose" and the word "cancer" results in 54,800 hits. "Mannatech" and "cancer" returns 90,000 hits. Certainly many of these hits now relate to news reports, blog entries, etc. mentioning these search terms within the context of this most recent legal action and the 20/20 segment. However, I had done this same, admittedly not very scientific, test over a year ago (while researching Alert #51) and both searches returned well over 100,000 hits! What's more, I recall receiving an unsolicited cassette tape in the mail which contained a recording of a live Mannatech event where their product was openly and blatantly described as an effective cancer treatment - and this was in the mid-90s!

After three securities class action lawsuits, three shareholder derivative lawsuits (all still pending, all dealing with allegedly deceptive product claims), a negative Wall Street Journal article, a negative 20/20 exposé, and an open declaration from the Texas AG that an investigation is in progress and a formal legal action is "anticipated", Mannatech certainly can't be surprised or unprepared for this. Talk about telegraphing a punch - Mannatech was essentially put on notice that the AG's fist was cocked back in preparation for a right cross to the jaw nine months ago! This was surely enough time to implement a zero-tolerance policy against anything resembling a medical claim, and to initiate a massive reeducation campaign throughout the field as to what one is. The fact this was not done would appear to indicate Mannatech management actually believes they are not ultimately responsible for what their distributors say, and/or that citing third party material or personal testimonials is somehow a safe haven for medical claims. In spite of the fact that evidence to the contrary is abundant and easily available.

In my opinion, this is one of the best reasons why an MLM company should never go public. It's hard enough putting the kibosh to claims that are making many distributors and corporate leaders money, but when it will cost your shareholders money, you're in for a heap o' trouble. Which is why it's so much harder for a public company to put the kibosh on such claims. Which is why Mannatech is now in a heap 'o trouble.
Len ClementsMarketWave, Inc.