Shares of Mannatech (NASDAQ: MTEX) are down about 23%, making the shares the top decliner on the NASDAQ. The problem? According to the Wall Street Journal, "The Texas attorney general has asked a state court to bar Mannatech Inc. from allegedly illegal sales and marketing practices, saying the dietary supplement seller is falsely claiming its products cure, mitigate, treat or prevent diseases such as cancer, autism and Down's syndrome, in violation of state and federal laws."
You can read Attorney General Greg Abbott's complaint here. Mannatech has been under fire for months, after the Wall Street Journal ran an unfavorable piece on the company, exposing much of the same wrongdoing that the Texas lawsuit accuses the company of.
Like Amway and Usana Health Sciences (NASADAQ: USNA), Mannatech distributes its products through a multilevel marketing business model. Associates seek to recruit others into the fold, earning commissions on their sales, and the sales of those that they recruit.
According to Mannatech Chairman Sam Caster, "We walk the fine line of always stating our case appropriately and always training our people. We're not into the treatment, cure or mitigation of disease. We're into the improvement of quality of life ... everybody benefits from good nutrition."
Here's the problem. According to Mannatech's opportunity website (emphasis added):
Mr. Caster can talk about "always training our people" but the fact is that no such training is required to distribute Mannatech products and recruit other distributors. Misrepresentation seems like a direct result of the nature of the business model.
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