Texas AG Sues Mannatech

DALLASTexas Attorney General (AG) Greg Abbott filed a lawsuit in Travis County district court against Coppell, Texas-based Mannatech Inc. and certain company execs, alleging the company uses unlawful and misleading sales tactics in violation of state law. The defendants are charged with violating the Texas Deceptive Trade Practices Act, which can result in civil penalties of $20,000 per violation; the AG also charged Mannatech with violating the Texas Food, Drug and Cosmetic Act. Abbott is seeking a permanent injunction preventing Mannatech from selling or marketing its products as curing disease conditions.

Texans will not tolerate illegal marketing schemes that prey upon the sick and unsuspecting, Abbott said in a statement. Aided by an army of multi-level sellers and their fictitious claims about its products, Mannatech has aggressively marketed supplements to countless unwitting purchasers.

Specifically, the lawsuit charges publicly-traded Mannatech (NASDAQ:MTEX) with encouraging its associates to use sales tools that exaggerate the efficacy of Mannatechs dietary supplements, including testimonials about the products therapeutic benefits for people with serious health conditions including cancer, Downs syndrome and autism. The companys CEO, Samuel L. Caster, and former medical director, Reginald McDaniel, are among the execs named in the lawsuit.

Mannatech, a direct sales company with a worldwide network of 350,000 distributors and nearly $400 million in 2006 sales, has been under investigation by the Texas AG since October of last year. In response to a public information request by an MTEX stock short-seller, the AGs office confirmed it was looking at Mannatech for making unproven health claims about its products, potentially putting the company in violation of state and federal law.