First Auditor Change, Now Wells Notice for CFO

The CFO and audit committee chair of Mannatech Inc. received SEC notices signaling potential action against them. This follows a change in audit fi...
Stephen TaubSeptember 8, 2008

Mannatech Inc., a provider of dietary supplements, said the Securities and Exchange Commission may take action against the company, its chief financial officer, and the chairman of its audit committee. At issue, is the timing and completeness of Mannatech’s October 2007 disclosure regarding its dismissal of Grant Thornton as its independent accountant, according to a company regulatory filing.

Mannatech, which also provides skin care products, said the regulator issued a Wells notice to the company, and the two individuals who were not identify by name. However, according to the company’s website, Stephen D. Fenstermacher has served as CFO and senior vice president since October 1999. He joined Mannatech in November 1998 as vice president of accounting and controller.

Additionally, in its latest proxy statement, Mannatech states that Larry A. Jobe, a director since January 4, 2006, currently serves as chairman of the audit committee. His term as director expires in 2009. Jobe is chairman of Legal Network Ltd., a firm he founded in 1993 that provides staffing and litigation support to law firms and corporate legal departments. He is also president and founder of P1 Resources LLC, which provides engineering and light industrial staffing services to the construction industry.

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Earlier in his career, Jobe was a member of the executive committee and chairman of the strategic planning committee, with Grant Thornton.

The Wells notices indicate that the SEC staff is considering recommending that the commission bring cease and desist proceedings against Mannatech and the individuals. Mannatech said it previously disclosed in its 2007 annual report, filed with the SEC on March 17, 2008, that the regulator had launched an informal inquiry. A company spokesperson was not immediately available for comment.

“Mannatech has fully and voluntarily cooperated with the SEC inquiry relating to this matter and presently intends to respond to the Wells Notice,” the company said in its latest regulatory filing. It did concede that the costs and other effects of any future litigation, government investigations, legal and administrative cases and proceedings, settlements, judgments and investigations, claims and changes in relation to the investigation could have a material adverse effect on Mannatech’s financial condition and operating results.

In October 2007, the company announced that it had dismissed Grant Thornton as its independent accountants following a request made by the auditor to remove Sam Caster as chairman. According to Mannatech’s filing, Grant Thornton said if Caster, who also founded the company, was not removed from office, it would not remain the company auditor. No details were provided related to Grant Thornton’s objections to allowing Caster to remain Mannatech’s chairman. The audit firm was not available for comment at press time.

Mannatech’s filing also noted that Caster had voluntarily given up his position as chief executive officer prior to receipt of Grant Thornton’s request. Mannatech’s audit committee approved the decision to change accountants, the filing said.

Mannatech also said that Grant Thornton’s audit reports related to the company’s financial statements for the fiscal years ended December 31, 2005 and 2006 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles. It also said that during Mannatech’s two most recent fiscal years and subsequent interim periods, there were no disagreements with Grant Thornton on any matter of accounting principles or practices.

The Dallas Morning News noted in addition to its problems with the SEC, last year the Texas attorney general’s office accused Mannatech of exaggerating the therapeutic benefits of its products for people with cancer, Down syndrome, cystic fibrosis and other serious conditions. That suit is pending in Travis County District Court, it added.

The paper also noted that Mannatech CEO Wayne Badovinus acknowledged last quarter that dealing with the attorney general’s complaint, as well as related shareholder lawsuits, was taking a financial toll on the company.