Mannatech (NASDAQ: MTEX), that ever-sleazy multi-level marketing company specializing in the sale of miracle pills, has settled a lawsuit with the Texas Attorney General involving the company's marketing practices.

Mannatech will pay $4 million in restitution to customers and $2 million to the state to cover its investigation expenses. Sam Caster, the company's founder, former chairman, and largest shareholders, will also pay $1 million and be barred from serving as an employee, officer, or director of the company for five years.

In 2007, Texas' attorney general filed a lawsuit accusing the company of exaggerating the benefits of its products, based on marketing materials produced by the company's independent distributors, which claimed that Mannatech vitamins could cure cancer and down syndrome.

Shares of Mannatech still trade on the NASDAQ for around $3 per share. In a press release, the company's CEO said that Mannatech has made significant changes to its operations since the investigation began, including the devotion of more resources to monitoring distributor compliance. But the fact is that Mannatech sells an overpriced product through a multi-level marketing structure that is rife with potential for consumer abuse.

The Wall Street Journal reports (subscription required) that Harvard Medical School professor David Sinclair has resigned from the board of Shaklee, a company that markets Vivix Cellular Anti-Aging Tonic, "the world's best anti-aging supplement", through a multi-level marketing system.

The Wall Street Journal has video footage (see below) of Dr. Sinclair speaking at the company's sales convention, describing the company's chairman and CEO Roger Barnett as the "greatest visionary of the 21st century."

That was in August and now he's gone. What prompted the change of heart? According to the Journal, "Following questions by The Wall Street Journal about his seeming endorsement of the product, Dr. Sinclair resigned from the board last week and now says his name has been misused in connection with Vivix, which contains the antioxidant resveratrol."

In an email to the Journal, he wrote that "To my dismay I have found numerous uses of my name and reputation on the Web and in other media that implies endorsement by me of Shaklee's Vivix product. I have engaged counsel to deal with this matter and have demanded that Shaklee cease using my name."

Methinks the good doctor doth protest too much. A cynical person might say that Sinclair endorsed a dubious network marketing product enthusiastically in exchange for his paid position on the company's advisory board and is now crying foul after the media raised questions about it.

Harvard Medical School is looking into the matter.

It sounds like a bad dream. You should up to listen to and perhaps ask questions of Mike Huckabee, a leading Republican candidate for President but first ... You have to sit through a speech about what a great opportunity Amway is. Pass the puke bucket.

But that's exactly what happened in West Des Moines, according to the Baltimore Sun: "For half an hour, two businessmen paced the stage where Huckabee would soon stump. They never said the name of the company during their talks, but afterward some members of the crowd shared with others the good news of a company called Quixtar Inc." Earlier this year, parent company Alticor said it was phasing out the Quixtar name and rebuilding its Amway brand which it had dropped in 2000.

Huckabee denies any formal association with the multi-level marketing hucksters, but said that they were a "great group of people."

It appears true that Alticor employees and executives haven't been giving to Huckabee. For whatever reason, company patriarch Richard DeVos has given money to Rudy Giuliani and Mitt Romney. But historically, Alticor has been a huge donor to the Republican Party.

Maybe Giuliani, Romney, and the GOP as a whole should do some research into the background of the company that has been one of the part's top donors for years. They could start with this excellent Dateline special.

Late last week, analyst Douglas Lane at Jeffries & Co. told investors that "direct selling companies" were going to be a good investment in the coming year. His rationale? The industry's ability to penetrate new consumer markets with disposable income, particularly in countries like China, Russia and India.

The news report explained that the "direct selling" industry distributes products by demonstrating them in homes and with product parties.

What the news story left out is the fact that "direct selling" is really a misleading term for what is now more commonly known as multi-level marketing (MLM), or network marketing.

Here's the problem with MLM from a consumer standpoint: The MLM industry has been around for decades, and still fails to be a real player in the retail marketplace. The economy functions by real retail sales from real retailers online and in brick-and-mortar stores. MLM could completely go away and almost no retail consumers would even notice.

In 1979, the FTC ruled that multi-level marketing giant Amway is not a pyramid scheme, after years of controversy surrounding the company. While Amway still has a shady reputation in many circles, it's managed to avoid that level of government scrutiny in the United States since the FTC ruling.

But things are not going so well in England. The country's Department of Trade and Industry has filed a sealed complaint against the company, but has declined to specify any details. Amway responded by announcing that it is conducting a review of its business practices, and posted on its corporate blog some of the things its doing to shape up. The company is placing a 120-day moratorium on recruiting in Britain has banned sales of motivational tapes and literature not produced by the company. The sale of motivational materials has been a hot-button issue among Amway's critics, who charge that high-level Amway distributors get rich by selling motivational materials to naive recruits.

It will be interesting to see what happens here. An unfavorable outcome for the company in England could re-open the issue stateside.

Amway was also recently sued in California, with former distributors charging that the company is operating a pyramid scheme.

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):

Build your own home-based business and be your own boss! Whether you're looking for the potential of part-time extra income or a promising new career, Mannatech has an opportunity for you.

Enroll as an Associate to become instantly eligible for the level of commissions you wish to earn. Share what you learn with as few as six friends, and you can receive a commission on the products they purchase!

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.

USANA Health Sciences (NASDAQ: USNA) just can't seem to wake up from its PR nightmare.

After the close of the market yesterday, San Diego class-action lawyer Alexander M. Schack said he filed a lawsuit in California state court on behalf of hundreds of low-level distributors in the state. The suit is also seeking an injunction preventing the multi-level marketing company from recruiting in the state.

Needless to say, California is a huge market for USANA and, at the very least, the publicity could hurt the company's recruiting efforts there.

According to Robert FitzPatrick of Pyramid Scheme Alert, "The essence of the Usana scheme is the chain letter. Participants pay up to $1,000 to participate in the "binary compensation" plan. They buy the bogus "business centers" (pyramid positions). They then must continue to buy over $100 of goods (priced in some cases 20 times more than comparable products sold in retail stores) every month. Of each dollar that the participant pays in, 40% goes to the upline recruiters. Of that amount, 70% goes to the top 3% of the pyramid chain. Virtually no one
retails the products at retail price. The prime consumers of Usana are just the "Associates" (pyramid participants.) Thus $28 of each hundred spent by the new recruits goes directly to schemers at the top of the pyramid. The bottom 97% are a continuously churning group. 2/3rds of them quit within a year. None makes a profit unless they can climb into the 3% by recruiting other victims."

USANA responded by saying that the suit was without merit and "relies on false claims made by a stock fraud felon who stands to profit from a decline in USANA's stock price."

If USANA wants to stop the bleeding, it will need to come up with a better defense. Barry Minkow, who the company's statement refers to, has earned a strong reputation for uncovering fraud and deception and was mentioned in Newsday a few days ago for his work in shutting down a $16 million ponzi scheme in New York.

Authorities have commended Minkow because he has a track record of providing facts that can be used to shut down financial crimes in progress. If USANA wants people to believe it is something other than that, it will need to provide a rebuttal to the allegations, something that is hasn't done so far.

Embattled multi-level marketing giant USANA Health Sciences (NASDAQ: USNA) hosted a quarterly earnings conference call on Wednesday that was questionable on a multitude of levels. The analysts continued to play the role of lap dog, failing to ask a single tough question. When I spoke with Certified Fraud Examiner and USANA critic Tracy Coenen about the call, she joked "Do you think the analysts are secretly USANA distributors?"

During the call, USANA management claimed that 88% of its distributors sign up because they want the products, not because they want to build a business. But the company declines to disclose its attrition rates -- the number of distributors who fail and leave the company each year. In fact, USANA's CEO wrote to the FTC to say that a proposed rule requiring network marketing companies to disclose their attrition rates would harm the company's ability to recruit.

According to Barry Minkow and the Fraud Discovery Institute's report, "Clearly, disclosure of failure rates is important when potentially 90% of the distributors (who bring in 86% of the company's direct selling revenue) will collapse within a 12-month period. Moreover, if USANA wants to fight the FTC on disclosing these statistics to distributors, so be it. However, the lawful thing to do (and that which the company should have done) is to disclose these pertinent issues to investors."

I certainly agree with Mr. Minkow on that point, but here's what I don't understand: If only 12% of USANA distributors sign up with the intent of building a business, why is that attrition rate so high, and why won't the company disclose it?

A college-age friend of mine keeps a large stuffed elephant in his dorm room. When people ask him why he has it there, he replies "Ssssshhhhhh . . . we're not supposed to talk about that!" I was reminded of this friend when I listened to Usana Health Science's (NASDAQ: USNA) 1st quarter conference call. Here's some of what's happened with Usana in the past month:

• Ex-con turned private investigator Barry Minkow released a report suggesting that the company's business model was an unsustainable pyramid scheme.
• Minkow accused a prominent director and spokesman for the company of inflating his academic credentials. The company admitted the "errors" and the director decided not to stand for re-election. Minkow also suggested another senior executive at the company had inflated his resume.
• A slew of shareholder class-action lawsuits have been filed against the company.
• The company announced that the SEC had begun an informal investigation of the company.

Fast-forward to Wednesday's conference call. Every question asked seemed to have a bullish slant, and assumed that the company was innocent. Questions centered around whether the company has seen an impact on sales from Minkow's report, and whether the company saw this as an opportunity to buy back more shares. I spoke with Barry Minkow about the conference call and he said, "I don't believe one thing they say" and also pointed out that "There was not one tough question allowed to be asked during the conference call."

Last week, I wrote about ex-con Barry Minkow's battle with Usana Health Sciences, a nutritional supplement company which distributes its products using a controversial multi-level marketing model. Minkow and his Fraud Discovery Institute released a huge report accusing the company of being a pyramid scheme, selling overpriced products, and making a profit on the backs of it's distributors, a huge percentage of whom did not make money. He also talked about the CEO's decision to renounce his U.S. citizenship for tax advantages, a fact which the company had not previously disclosed. As the war of words has heated up, Mr. Minkow released a video on YouTube, where he continued to attack the company. In the accompanying press release, Minkow wrote that:

Since their lawsuit specifically accuses me of 'publicizing my findings, I thought, 'what better way to publicize our findings in the clearest, most compelling and concise manner, than in an easy- to-access video forum like that of YouTube.com and our own website, http://www.frauddiscovery.net?'" Fraud Discovery Institute will be producing multiple segments outlining in exquisitely clear detail what our research concluded about the un-tenability of the Usana Health Sciences, Inc. business model and then placing those segments online...

Mr. Minkow's decision to take his fight to YouTube provides another interesting case of YouTube being utilized to influence investors.. Back in February, I wrote about mPhase Technologies, a small company that appeared to be using YouTube to promote its stock (The stock plunged shortly after the hype of the video.).

Minkow also appeared on TheStreet.com's Wall Street Confidential to discuss Usana.