UNITED STATES DISTRICT COURT DISTRICT OF NEW MEXICO In re MANNATECH, INC. ) Master File No. CIV-05-0829-JP/RLP SECURITIES LITIGATION ) ______________________________________) CLASS ACTION ) This Document Relates to: All Cases ) DEMAND FOR JURY TRIAL ______________________________________) CONSOLIDATED CLASS ACTION COMPLAINT FOR SECURITIES FRAUD INTRODUCTION AND NATURE OF THE ACTION 1. Lead Plaintiffs Austin Chang, Naomi S. Miller, John C. Ogden, and Plumbers and Pipefitters Local 51 Pension Fund (collectively, “Lead Plaintiffs” or “Plaintiffs”), individually and on behalf of a proposed class (the “Class”) of all purchasers of the publicly traded securities of Mannatech, Inc. (“Mannatech” or the “Company”) (NASDAQ:MTEX) between August 10, 2004 and May 9, 2005 (the “Class Period”), by and through their undersigned counsel, allege the following against Mannatech, Samuel L. Caster (“Caster”), Terry L. Persinger (“Persinger”), and Stephen D. Fenstermacher (“Fenstermacher”) (Mannatech, Caster, Persinger, and Fenstermacher are hereinafter sometimes collectively referred to as “Defendants”), each of the individual defendants having been a senior officer and/or director of Mannatech during the time the fraud complained of herein was committed and Mannatech’s stock was artificially inflated, seeking remedies under the Securities Exchange Act of 1934 (the “Exchange Act”) as a result of the fraudulent scheme - 1 - undertaken by the Defendants and the economic loss suffered when the true facts were revealed to the public. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. 2. Mannatech develops nutritional supplements, skin-care, and weight management products. Operating in the field of “glyconutrients,” Mannatech claims to have developed innovative, high-quality, proprietary nutritional supplements, topical and weight-management products sold through a global network-marketing system of independent associates and members. Mannatech claims that glycobiology, which it relies on to sell its glyconutrient products, is the science of understanding how carbohydrates affect biological structures, functions, and processes. 3. Mannatech’s business operates as a single segment. The Company sells its products primarily through a network of more than 300,000 “independent” associates and members. In other words, Mannatech is a multi-level marketing company in which associates sign up with the Company to buy Mannatech products. In turn, these associates recruit additional associates who also buy products from Mannatech. As associates recruit other sales people, they benefit financially from the amount of Mannatech products bought by the recruits. For example, a high-ranking associate may have 50 associates working below him or her (i.e., “downline” associates) and can get credit and compensation not just for the Mannatech products she/he sells, but also based on the downline associates’ sales and purchases of Mannatech products. The result is that Mannatech associates function both as purchasers of Company products and as a nationwide sales force that markets Mannatech products, often through the internet, at recruitment meetings, or face to face. According to Mannatech’s website, the Company has several thousand associates, including at least 4,200, that reside in New Mexico. - 2 - 4. Unknown to investors, Defendants engaged in a fraudulent scheme throughout the Class Period to portray inaccurately and otherwise falsify the Company’s financial results and demand for its products. Defendants, hiding behind their army of associates, made glowing statements about Mannatech’s products, hyping the products as miracle cures for weight loss and serious illnesses, such as a pill that could “work wonders” on cancer. Defendants’ fraudulent scheme and wrongful course of business was designed to and did artificially inflate Mannatech’s reported financial performance and the price of its stock. As a result, Mannatech’s stock soared to reach $26.04 per share during the Class Period. Defendants took advantage of this inflation, selling or otherwise disposing of 178,100 shares of their Mannatech stock then valued at more than $3.7 million. 5. Mannatech stock continued to trade at artificially inflated levels until May 9, 2005. On that day, the Company announced “record” sales and revenues. On that same day, Defendants’ carefully painted mirage came into focus, however, as Barron’s published an article exposing improper practices that, in reality, were the basis of Mannatech’s business model. The article questioned the legitimacy of the Company’s business, and noted that despite the Company’s “surface flash, eye-popping financials and grand plans, Mannatech’s allure steadily dims the more intensely one scrutinizes its provenance and how it makes its living.” Specifically, the article detailed Caster’s history and questioned the methods of the Company’s sales associates and their “seemingly irrepressible inclination . to make extraordinary therapeutic claims for the supplements,” which had “irked some foreign regulators.” The article also cited millions of dollars worth of suspiciously timed sales by Company insiders and pointed to a complaint filed in Los Angeles Superior Court which charged the Company with negligent misrepresentations and conspiracy to commit fraud. - 3 - Thus, the Barron’s article revealed Mannatech’s true financial condition and exposed the fraudulent nature of Mannatech’s marketing. 6. On May 10, 2005, in response to the leaking out of the relevant truth via the revelations in the Barron’s article that questioned the legitimacy of the Company’s statements and business practices, Mannatech stock dropped as low as $11.64 per share before closing at $12.15 per share on tremendously spiked trading of 2.2 million shares – approximately twenty times the stock’s normal trading value. In total, Mannatech lost more than 50% of its value during the Class Period. It is highly telling that the stock sunk following disclosure of the Company’s highly suspect and manipulative sales practices – as the day before the Company had announced “record” earnings. JURISDICTION AND VENUE 7. This Court has jurisdiction over the subject matter of this action pursuant to § 27 of the Exchange Act, 15 U.S.C. § 78aa, and 28 U.S.C. § 1331. 8. Venue is proper in the Judicial District pursuant to Section 27 of the Exchange Act, 15 U.S.C. § 78aa, and 28 U.S.C. § 1391(b). In addition, the causes of action asserted herein occurred and/or accrued, among other places, in this District. At all times relevant to this action, Mannatech maintained several thousand associates within this District and many of the acts and transactions alleged herein, including the illegal sale and marketing of Mannatech products, occurred in substantial part in this District. 9. In connection with the acts, conduct, and other wrongs alleged in this Complaint, Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including but not limited to, the United States mails, interstate telephone communications, and the facilities of the national securities markets. - 4 - THE PARTIES 10. Plaintiffs Austin Chang, Naomi S. Miller, John C. Ogden, and Plumbers and Pipefitters Local 51 Pension Fund purchased Mannatech securities on the open market during the Class Period as set forth in their certifications previously filed with the Court. The Court’s January 4, 2006 Order appointed Plaintiffs as Lead Plaintiffs in this consolidated action.1 11. Defendant Mannatech is a Texas corporation with its executive offices located in Coppell, Texas. Mannatech is a wellness solutions company that develops nutritional supplements, topical products, and weight management products. Its products are purportedly designed to support cell-to-cell communication, the immune system, the endocrine system, skin, and health, as well as nutritional support during weight loss. The Company touts itself as a pioneer in glyconutritional technology, occupying a “unique niche” within the field of carbohydrate technology. As detailed below, Mannatech’s products are not medicine and do not cure disease. Nevertheless, Mannatech markets its products as doing just that in order to illegally inflate sales, skew perceived demand, and, consequently, artificially inflate the price of its stock. 12. During the Class Period, defendant Caster was the Chief Executive Officer and Chairman of the Board of Directors of Mannatech. Caster co-founded Mannatech and served as Mannatech’s President and as a Director on its Board of Directors from November 1993 until his resignation on March 31, 2000. From June 1, 2000 through March 4, 2002, Caster provided Mannatech with various consulting services related to its associates’ needs and developed Mannatech’s global associate career and compensation plan. In August 2000, Caster was reappointed to serve as a director on Mannatech’s Board of Directors. From June 4, 2001 to March 1 The Order appointed the “Mannatech Group”, which is comprised of Austin Chang, Naomi S. Miller, John C. Ogden, and Plumbers and Pipefitters Local 51 Pension Fund as Lead Plaintiffs. - 5 - 4, 2002, Caster also served as Co-Chairman of Mannatech’s Board of Directors and since March 5, 2002 has served as its Chairman of the Board. On April 15, 2003, Caster was elected Mannatech’s Chief Executive Officer. 13. During the Class Period, defendant Persinger was the President,