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Coppell-based Mannatech to pay millions to settle diet-supplement lawsuit [Fort Worth Star-Telegram, Texas] Knight Ridder/Tribune    "Business News "
Feb. 27 -- DALLAS -- Dietary supplements seller Mannatech Inc. will return $4 million to customers and its founder will pay a $1 million fine for lying about the health benefits of its products, the Texas attorney general's office announced Thursday.

At a news conference in Dallas , Attorney General Greg Abbott said the Coppell-based company tricked people into thinking its products would prevent, treat or even cure diseases.

"Bottom line, this is a warning to the general public: Be wary of phony claims of magic cure-all pills or false hope in a bottle," Abbott said. "You could be duped into purchasing something that has no real effect and no real value."

Under the agreement, Mannatech will also have to pay $2 million to cover the state's costs in the case.

In addition, company founder and former Chief Executive Sam Caster is prohibited from serving as a director, officer or employee of Mannatech for five years.

Caster is also barred from taking a role in any other multilevel marketing programs for five years, Abbott said.

Mannatech is required to send notice letters and restitution claim forms to all customers eligible for reimbursement within 15 days. Customers who sold the company's products, likely thousands of people, are ineligible for the restitution, Abbott said.

Abbott sued the multilevel marketing company after public reports accused Mannatech of selling its supplements as cures for cancer, Down syndrome, multiple sclerosis, attention deficit disorder, asthma, toxic shock syndrome, and other diseases and conditions.

The lawsuit, filed in July 2007 , accused the company of engaging in an illegal marketing scheme that defrauded consumers nationwide.

Abbott stressed that the products Mannatech sells are legal, but that how they were marketed was not. While his office did not find evidence of harm caused by Mannatech's products, the claims the company and its affiliates made about the products may have harmed customers indirectly, Abbott said.

"We do not know who may have forgone any kind of healthcare treatment, relying on these products instead," Abbott said.

Mannatech makes supplements, known as glyconutrients, that were said to provide the body with essential sugars. The theory, according to the company, is that the sugars are essential to promote better communication between the body's cells, which support the immune system.

Mannatech executives associated the company's work with glycobiology -- a science that deals with the function of sugar molecules in biology -- but leading scientists in the field were highly critical of the company.

One characterized Mannatech's main product as, literally, a sugar pill.

When asked why the company or Caster aren't facing any criminal penalties, Abbott said, "We believe that this is a very stiff civil penalty." He added that his office could pursue further penalties, investigations or legal action if Caster or Mannatech violate any part of the settlement.

"If they do it again, we will ensure that they get put out of business," Abbott said.

Caster has previously been the target of an investigation by the attorney general's office. Before founding Mannatech, he directed Eagle Shield, which the attorney general twice sued for engaging in deceptive selling.

Mannatech Chief Executive Wayne Badovinus said Thursday that Mannatech has already implemented the changes that are required under its settlement with the attorney general. Among them: More strenuous oversight of Web sites that promote Mannatech products; giving up third-party testimonials; and offering customers a six-month return policy.

He also said that while Caster will no longer serve as a leader or employee at Mannatech, he'll work as a consultant answering directly to Badovinus.

"As the founder, he can be of great help to us in making the changes -- the cultural changes -- that we need to make," Badovinus said. "Someone like Sam brings a huge reservoir of knowledge of these products, of this company, and our field, and can really be an important help in moving us to maintaining compliance."

Caster, who was chairman of the company until this month, wasn't available for comment Thursday.

Mannatech had received numerous accolades for its fast growth earlier in the decade, as sales rocketed to more than $400 million in 2006. But the company's quick rise was accompanied by growing complaints about deception.

Company officials had maintained that it operated within all state and federal laws and was not itself making claims about curing disease. Mannatech's guidelines for its sales associates prohibited them from using printed or recorded testimonials citing disease-specific improvement when selling products. It also said it disciplined sales associates who violated the policy.

But those very materials were produced by Mannatech associates or others affiliated with the company and were sold to associates by a vendor the company allows to work its corporate events, the Star-Telegram reported in a 2006 investigation that detailed many of the practices that formed the basis of the attorney general's lawsuit. The lawsuit called the disciplinary policy a facade.

Mannatech has struggled financially in recent years and reported a loss of $429,000 in its most recent quarter. Its quarterly sales of almost $78 million were down almost 20 percent from the same period in 2007.

"The company has been greatly stressed by this suit," Badovinus said.

The company's stock (ticker: MTEX) has plunged roughly 80 percent from its price of $15.01 before the attorney's general suit was filed. Its shares, which are traded on the Nasdaq, closed Thursday at $3.13 .

The original lawsuit also named as defendants H. Reginald McDaniel, a Mansfield physician long tied to the company; and two charitable organizations with company links: MannaRelief Ministries and Fisher Institute for Medical Research . The defendants were accused of violating the Texas Deceptive Trade Practices Act and the Texas Food, Drug and Cosmetic Act.

The suit against those three defendants is still pending, said Jerry Strickland, a spokesman for the attorney general's office.

Staff writer Maria M. Perotin contributed to this report, which includes material from The Associated Press and Star-Telegram archives.

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Copyright (c) 2009, Fort Worth Star-Telegram, Texas

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