In July of last year, the Attorney General of Texas filed a lawsuit against multi-level marketing company Mannatech (NASDAQ:MTEX), alleging the company used illegal sales and marketing practices.
Then in August, the company’s CEO, Sam Caster, stepped down. Although he resigned as CEO, he stayed on as chairman of the board.
In October, Grant Thornton, the company’s auditing firm, was fired. Mannatech issued a press release which stated that Grant Thornton was dismissed because they wanted the company to relieve Sam Caster of all duties, and the board said no. Mannatech said there were no disagreements about accounting principles or audit matters.
Less than a week after issuing the press release about the auditor change, the SEC contacted Mannatech and encouraged the company to revise its filing and be more specific about a few items regarding the auditor departure.
End of story? No. The 2007 10-K filed by Mannatech had a small item buried in it regarding an open, informal SEC investigation. And late last week, it was announced that Mannatech received a Wells Notice from the Securities and Exchange Commission.
The notice relates to the timing and completeness of the disclosure of the firing of Grant Thornton. This notice means that the SEC believes Mannatech violated the rules in not telling the public about the auditor change fast enough, and not giving us the full story.
All this follows poor financial results this year. Second quarter sales were down 22% and the company lost $10.5 million, compared to a profit of $1.5 million during the second quarter of 2007. It seems that making false claims about Mannatech products curing everything from cancer to diabetes may not be working out so well.