Within the last few days class action lawsuits have been filed by at least three different law firms in the US District Court of New Mexico on behalf of those investors who purchased stock in Mannatech between August 10, 2004 and May 8th, 2005. The complaints charge Mannatech (Nasdaq:MTEX) with violations of federal securities laws. The plaintiffs allege that Mannatech and it's distributors issued false, misleading or unfounded information about the efficacy of their products which artificially inflated Mannatech's stock price. On May 9th of this year when Barron's published an article attacking the misleading claims Mannatech's stock plummeted 26% and another 19% the following day.
To view a press release by one of the law firms, go to:
http://tinyurl.com/bq786Commentary:
Making claims that your dietary supplement products will prevent, treat or cure diseases can get you into hot water with the FTC and FDA. However, this is a great example of how medical claims can even violate securities law. Specifically what has been alleged in this case is that Mannatech distributors made such claims on their personal web sites and Mannatech corporate either failed to adequately monitor and control them, or that the company was tacitly encouraging reps to make these claims. Then, allegedly, securities investors bought the stock thinking it was undervalued for a company that supposedly had a treatment for cancer, and other diseases.
There are MLM companies out there that are very responsible corporate citizens who really are making an accreted effort to reign in their more overzealous marketers. Then there are those who publicly denounce such campaigns, but look the other way. They know that forcing all reps to knock off the "cure all" claims would significantly impact sales. There's absolutely no excuse for any MLM company to not be able to monitor such claims from being made. All you have to do is go to www.alltheweb.com (better search engine than Google) and search for the name of your MLM company or product and the word "cancer" (make sure the word "AND" is in all caps). For example, search for "Mannatech AND cancer" (without the quotes) and you'll find over 77,000 web pages that contain both of these words -- even now, three days after the first law suit was filed. Sure, some might hit because they contain statements like "Mannatech products do not cure cancer". But not many. Others may hit because they reference antiquackery web sites, or perhaps even these recent law suits. Many others hit conversations in message boards that discuss cancer issues in one post and Mannatech in a completely different post. I understand all that. But I've yet to do such a search and not find a number of blatantly guilty distributor web sites within minutes of getting the search results. Don't you think the MLM company's compliance department can do the same search?
In the case of Mannatech, I actually think they are. But they've gotten so big (over 400,000 reps worldwide) they are just getting overwhelmed. When I did the above search for Mannatech and cancer, I found this web site:
http://www.jenerik.com. It speaks for itself.
To your success,
Len Clements
MarketWave, Inc.
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