The Securities and Exchange Commission said
agreed to pay $3.5 million to settle claims over misstatements the toy maker made in its 2017 financial statements.
The regulator on Friday also said it would hold a public hearing to determine whether Joshua Abrahams, a former audit partner at PricewaterhouseCoopers LLP, Mattel’s auditor, violated auditor independence rules.
Mattel senior finance executives and PwC obscured accounting issues the company discovered in 2018 that had reduced its loss for the previous year’s third quarter, The Wall Street Journal reported in 2019. They decided to change the accounting treatment of Mattel-owned animated children’s show Thomas & Friends instead of restating earnings, the Journal said at the time. An internal investigation found the executives agreed to not tell Mattel’s then-chief executive or its board of directors.
The El Segundo, Calif.-based maker of Barbie dolls and Hot Wheels cars understated the tax-related valuation allowance for the third quarter of 2017 by $109 million and overstated the tax expense for the following quarter by the same amount. Mattel’s net loss and net loss per share were understated by 15% for the third quarter and then overstated by 63% for the fourth quarter, the SEC said.
Mattel had no internal control specifically related to calculating a valuation allowance, the regulator added.
Mattel in October 2019 admitted the accounting error and said an internal investigation found weaknesses in its procedures. The company also said its then-Chief Financial Officer,
would leave. He left Mattel in August 2020, according to his LinkedIn profile. The company in November 2019 corrected the $109 million tax expense error.
Mr. Abrahams, the lead auditor on the PwC account at the time of the alleged misstatements, failed to verify the uncorrected $109 million error was documented even though he knew about it, the SEC said. He also failed to tell Mattel’s audit committee about the error, the regulator said.
The SEC accused Mr. Abrahams of failing to maintain independence by, for example, suggesting to Mr. Euteneuer which candidate would be the best for a senior role at the toy maker and who shouldn’t be hired.
Mr. Abrahams worked at PwC from 2004 until 2019, when he resigned.
Mattel didn’t admit to or deny the SEC’s claims when it agreed to pay the fine. A Mattel spokeswoman said the company is “pleased to have the matter behind” it. “While we’re not going to comment on the underlying facts, we appreciate the SEC’s recognition of the company’s remedial measures,” the spokeswoman said.
PwC declined to comment. Mr. Abrahams and Mr. Euteneuer didn’t immediately respond to requests for comment.
Write to Mark Maurer at Mark.Maurer@wsj.com
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