September 26, 2021

Will Class Be In Session For Investors Suing Mattel and PwC Over Accounting Error Cover-Up?

Ah, we have an update on the class-action suit filed against Mattel and its longtime auditor, PwC, by investors who claim Mattel’s finance team and PwC auditors covered up an accounting error that affected the toy giant’s financial results toward the end of 2017.

Bloomberg Law reported today:

Mattel Inc. investors who accused the company of engaging in a “cover-up” after making material misstatements in financial results asked a federal judge in California for permission to pursue their suit as a class.

The proposed class includes everyone who acquired the toymaker’s common stock from Aug. 2, 2017, to Aug. 8, 2019, inclusive, according to the motion for certification filed in the U.S. District Court for the Central District of California. The suit also includes allegations against PricewaterhouseCoopers LLP, Mattel’s auditor.

Mattel and PwC moved to dismiss the case, but Judge Mark C. Scarsi rejected their attempt in [January].

The law firm Bernstein Litowitz Berger & Grossmann, which would be class counsel for the lead plaintiffs, DeKalb County Employees Retirement System and New Orleans Employees’ Retirement System, said in the motion of certification filed on April 30 that the proposed class satisfies the numerosity, commonality, typicality, and adequacy requirements under Rule 23(a) of the Federal Rules of Civil Procedure, and it also meets the requirements of at least one of Rule 23(b)’s subsections.

The filing states:

Like most securities-fraud actions, this one is ideally suited for class treatment because it arises from common misrepresentations that harmed thousands of investors in Mattel’s stock during the Class Period in a like manner.

Investors claim Mattel incorrectly reported a tax valuation allowance of $561.9 million in 2017. That value was understated by $109 million, and the company later overstated its losses by $109 million on its annual report for that year to cover up the first error.

PwC is accused by investors of making false statements on tax forms to conceal Mattel’s understatement of losses. PwC, which has been Mattel’s auditor since 1974, worked with Mattel to “deceive the investing public,” according to the investors’ complaint.

After Mattel disclosed on Aug. 8, 2019, that it had received an anonymous whistleblower letter and that it was canceling a $250 million debt offering that had been scheduled to close that day, stock prices dropped about 15% in one day from $13.43 a share to $11.31, the investors said.

Mattel Investors Want Class Status for ‘Cover-Up’ Allegations [Bloomberg Law]

Related articles:

PwC Probably Did Celebrate When It Helped Mattel Cover Up an Accounting Error
Lawsuit: Mattel Shareholders Are Holding PwC’s Feet to the Fire

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3 Comments

  1. Where is the PCAOB on this?
    Do you know the PCAOB has never brought an action against a CPA firm where the auditee in question had a market capitalization (MC) over $6.6 billion?
    Mattell’s current MC is $7.5 billion.
    We will see.

    1. How do you know this when the PCAOB does not release the names of the companies it reviews?

      Also, do you know with the many errors that that the PCAOB finds, how many restatements have their been – seems like -0- as they appear to be immaterial.

  2. Go to the PCAOB’s website and read settled and adjudicated actions. This will tell you what the auditee’s name was. The audit I mentioned was Satyam and the CPA firm, Price Waterhouse of India.
    The PCAOB does not release the names of the audits it inspects.
    If you are curious, read the PCAOB’s settled and adjudicated actions.

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