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Mattel execs, PwC hit with derivative suit over $109 mln tax error

2 minute read

The logo of accounting firm PricewaterhouseCoopers (PwC) is seen on a board at the St. Petersburg International Economic Forum (SPIEF), Russia, June 6, 2019. REUTERS/Maxim Shemetov

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  • Suit comes after Mattel understated 2017 quarterly losses by $109 mln
  • Company's execs already facing derivative suits in Delaware

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(Reuters) - A Mattel Inc shareholder accused the toy maker's executives and tax auditor PricewaterhouseCoopers LLP of making false statements in Mattel's financial filings to cover up a $109 million tax error, according to a new derivative suit filed in Delaware Chancery Court.

Mattel shareholder Richard Armon sued the company's executives and board on Friday for allegedly causing the company to suffer “significant financial losses” because of how they handled the 2017 tax error.

The company’s board is facing several suits over the error, including two other derivative suits filed in the Chancery Court in May, according to court records. A proposed class action in Los Angeles federal court is moving toward class certification after surviving a motion to dismiss in January.

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Armon’s attorney and Mattel representatives did not immediately respond to requests for comment on Tuesday. PwC did not immediately respond to a request for comment.

The Mattel executives and PwC have previously denied allegations of wrongdoing.

According to the most recent lawsuit, Mattel understated its quarterly losses in its 2017 third quarter report by roughly $107 million.

Armon alleged that the company and its auditor PwC fraudulently changed Mattel's net losses for 2017’s fourth quarter to account for the mistake, “sweeping the tax valuation error under the rug.”

Mattel and PwC continued to maintain that the company’s financial reports were accurate until August 2019, when Mattel became aware of a former employee in its tax department who described the alleged fraud to attorneys and the media, the lawsuit said.

The retail business’ stock price fell that month after the company announced it was investigating the whistleblower’s allegations.

The investor said the tax error caused the company to overpay when it repurchased shares from shareholders for more than $23 million.

The case is Armon v. Euteneuer, Chancery Court of Delaware, No. 2021-0562.

For Armon: Joshua Grabar of Grabar Law Office and Seth Rigrodsky of Rigrodsky Law

Counsel information for the defendants was not immediately available.

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Sierra Jackson reports on legal matters in major mergers and acquisitions, including deal work, litigation and regulatory changes. Reach her at sierra.jackson@thomsonreuters.com

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