Shareholders File Lawsuit Against Mattel Over Toy Recalls

Mattel’s shareholders are upset. A pension fund in Michigan has filed a shareholder lawsuit against the company, claiming that they mishandled product safety procedures and were therefor responsible for 3 toy recalls this summer. The lawsuit also alleges that executives with knowledge of the defects sold $33 million in stock before the recalls were announced.

From the New York Times:

The suit claims that Mattel’s directors, including the chief executive, Robert A. Eckert, breached their duty to shareholders by allowing the company to delay the reporting of hazardous toys beyond the 24-hour window required by federal regulators. The suit also accuses four directors of selling $33 million shares of Mattel stock from late January to early May and profiting from insider knowledge of coming problems.

The suit, by the Sterling Heights Police and Fire Retirement System, seeks compensation from board members for the loss that shareholders may incur from the recalls. It was filed in state court in Delaware, where Mattel is incorporated.

Mattel did not respond to a request for comment on the case.

Consumers have recently filed 10 personal injury cases against Mattel in federal courts and even more in state courts, according to Grant & Eisenhofer, the law firm that filed the shareholders’ suit today. The pension fund involved in the suit owns 23,600 Mattel shares, which were worth about $534,776 at Wednesday’s opening price, according the firm.

Last month, Mr. Eckert told the Wall Street Journal that Mattel thought a regulation requiring Mattel to report dangerous defects within 24 hours was “unreasonable.”

From the Wall Street Journal:

Mattel Chairman and Chief Executive Robert Eckert said in an interview that the company discloses problems on its own timetable because it believes both the law and the commission’s enforcement practices are unreasonable. Mattel said it should be able to evaluate hazards internally before alerting any outsiders, regardless of what the law says.

By mandating that companies immediately report any incident that could conceivably expose a hazard, the commission’s “standard might apply to almost anything,” Mr. Eckert said. “It’s very easy for anyone to apply the word ‘could’ backward,” he added.

Ekhert later looked uncomfortable while being questioned by the House Energy and Commerce Subcommittee about the WSJ interview. He claimed that the statement “wasn’t in quotes.”

Mattel is currently under investigation for its shoddy track record when it comes to reporting dangerous defects, and was fined $975,000 earlier this year for failing to report a defect with a popular toy from its Fisher-Price division.

Concerned parents had reported a defect in which a small nail fastener came loose and posed a choking hazard, but it was not until 7 months later, after a child inhaled the nail fastener and needed emergency surgery to remove it, that Fisher-Price reported the defect to the CPSC.

Mattel Faces Shareholder Suit Over Toy Recalls [New York Times]
(Photo:Dust Storm)