MarketWave Alert #: 87 Print


8/20/2007
Mannatech Terminates Top Distributor
CEO Sam Caster Terminates Himself


Last Friday (the 17th) Mannatech issued a brief press release announcing that they had terminated Ray Gebauer due to his recent conviction for tax evasion. Gebauer, who had been a Mannatech distributor since 1994, was their highest earning rep at one point with a downline exceeding 100,000 people that earned him a monthly income well into the six digits. He was one of only about ten Associates to reach the rank of "Platinum Presidential", the highest position in Mannatech's compensation plan.

According to Terry Persinger, President, COO, and now interim CEO of Mannatech, "Mr. Gebauer's conviction places him in violation of his Associate agreement with Mannatech. We expect, and the Company's policies require, all Mannatech Associates to comply with applicable laws, including tax laws."

According to an article published in the August 14th edition of The Wall Street Journal, Gebauer was found guilty by a jury and is currently being held without bail while he awaits sentencing (scheduled for November). He could face up to 20 years in prison.

The jury found Gebauer guilty of failing to pay taxes from 1998 through 2001. According to the WSJ article, which quotes assistant U.S. attorney Karyn Johnson, his gross income was over $3.5 million during those years and Gebauer owes at least $316,000 in taxes. Ms. Johnson is also cited as stating Gebauer last filed a tax return in 1996.

The press release can be viewed here:
http://biz.yahoo.com/prnews/070817/laf052.html?.v=81

The Wall Street Journal Article can be viewed here:
http://online.wsj.com/article/SB118713131702197779.html?mod=yahoo_hs&ru=yahoo

Sam Caster Resigns

According to a company press release, Sam Caster has resigned as Mannatech's CEO so he may "focus his efforts on working with field sales leaders to transition to Mannatech's new global wellness sales program."

The Texas Attorney General sued the company on July 5th for operating an "elaborate scheme" to defraud consumers (by overstating their productís ability to prevent, treat or cure diseases). Mannatech followed with the announcement of new "compliance initiatives" designed to better control the claims made by their Associates.

Sam Caster founded Mannatech in 1993 under the name Emprise International. He will remain chairman of Mannatechís board of directors. Mannatechís president, Terry Persinger, has been named interim CEO while a search is conducted for Casterís replacement.

Mr. Casterís corporate history with Mannatech has been contentious. On April 1, 2000, Caster resigned as President and became Co-Chairman with Persinger replacing him as President. Caster resigned a month later due to his removal as President and the boardís refusal to name him the sole Chairman of the Board. Another month after that Caster entered into a "consultancy agreement" with Mannatech where Caster would be a "Global Vision Architect Consultant" (for $600,000 annually plus expenses and other perks). On March 5, 2002, the Board of Directors nominated Caster as sole Chairman of the Board. On April 15, 2003, Mannatech's board again appointed Caster as its CEO.

A news report about Mannatechís new "compliance initiatives" can be viewed here:
http://www.star-telegram.com/business/story/178805.html

The Texas Attorney Generalís notice pertaining to their legal action is here:
http://www.oag.state.tx.us/oagnews/release.php?id=2086

The company press release concerning Mr. Caster's resignation is here:
http://biz.yahoo.com/ap/070821/mannatech_ceo.html?.v=1


Commentary:

Let's count how ways somebody got this wrong.

The Wall Street Journal claims Gebauer "operated a network that had 718,000 associates and customers". As of June 30th Mannatech (the entire company) had sold products within the previous 12 months to a total of 569,000 people. The WSJ also states that Gebauer earned $3.5 million during those four years in question, and that was his total income, not just from Mannatech commissions. That averages about $72,900 per month. That's probably a little light. But assuming it's accurate, how does that result in a total tax burden of $316,000? Keep in mind, Gebauer didn't just skimp on his taxes, he didn't even file! Ray is one of those anti-tax renegades who believe paying taxes is voluntary (there's quite a few who believe likewise -- some of which heís probably about to spend some quality time with). The article also states he didn't file a return from 1998 to 2001, but "last filed a tax return in 1996". What happened to 1997? I appreciate that much of the data cited by the article's author came from Ms. Johnson, but still, considering this and their previous Usana reporting I've got to wonder, does anyone vet these articles before they are published?

And then there's Mannatech. I also appreciate that there are a number of investor law suits against them right now, and the Texas AG has sued them for making medical claims about their products, so they have state regulators and shareholders to impress. But I'm not sure canning your top distributor is the way to do this. First of all, I believe they've just opened themselves up to blockbuster wrongful termination law suit. As an independent contractor, who was promised "residual income" I'm thinking what legal challenges one my have in their personal life shouldn't have any effect on that already earned income. I'm sure Mannatech isn't thrilled about the idea of paying huge sums every month to a guy sitting in prison (not the most conducive environment for recruiting), but so what? The deal wasn't to pay effortless "residual income" as long as you keep applying effort. It's my opinion that any clause in the Mannatech Policies that allows for termination of this income for legal violations that are personal and have nothing to do with the Mannatech business would not withstand a legal challenge. But yes, it likely will cause an up tick in their Earnings-Per-Share.

Then there's Mr. Caster. My suspicious (only that) is that, as I reported in Alert #84, Casterís stated beliefs as to what are defensible product claims, and the amount of warning and opportunity Mannatech was given to have avoided the AG legal action, might have again caused the board to ask for Caster's resignation. Either way, the violations of FDA regulations in how their products were being promoted were egregious, obvious, numerous, and continuous, and Caster had many months, if not years, to have implemented "compliance initiatives" that would have avoided the shareholder class actions, bad press, and AG law suit.

And finally, there's Mr. Gebauer. Ray, what were you thinking!? Even if you're right - even if there isn't a specific law that says we have to pay federal income taxes (no, I canít find it either) - how many like-minding inmates does there have to be before you abandon this utterly unwinnable war? After all, even if you were to prove, once and for all, that income taxes are voluntary, either everyone stops paying income taxes and the United States government and economy completely collapses within weeks and utter chaos ensures, or congress simply passes an amendment to the Constitution that makes income taxes compulsatory! Why risk such a wonderful, opulent lifestyle - which you still would have had even if you gave Uncle Sam 35% of it - to fight a war that logically, rationally, can not possibly be won, that practically guarantees your eventual incarceration!?

As Charlie Sheen's character said to Michael Douglas's in the movie "Wall Street"...
How many yachts can you ski behind?

Len Clements
MarketWave, Inc.


 

  Since 1989, Leonard Clements has concentrated his full-time efforts on researching and analyzing all aspects of Network Marketing. He is a professional speaker and trainer, and currently conducts "Inside Network Marketing" seminars throughout the world. Len is the author of the controversial book "Inside Network Marketing" (Random House) and the best selling cassette tapes "Case Closed! The Whole Truth About Network Marketing" and "The Coming Network Marketing Boom." He is a court recognized expert in the field of network marketing.

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