United States SEC Fines Barbie-Maker Mattel $3.5 Million for Financial Misrepresentation in 2017 with $109 Million Error, Former PwC Audit Partner Knowingly Did Not Report Error
27th October 2022 | Hong Kong
The United States Securities & Exchange Commission (SEC) has fined Barbie-Maker Mattel $3.5 million in settlement for financial misrepresentation in 2017 with $109 million reporting error, and with former PwC Audit Partner (Joshua Abrahams) knowingly did not report the error. Mattel is listed on Nasdaq with a market value of around $6.7 billion, and Mattel leading toy brands include Barbie, Hot Wheels, Fisher-Price, American Girl, Thomas & Friends, UNO & many more. United States SEC: “Mattel understated the tax-related valuation allowance for the third quarter of 2017 by $109 million and overstated the tax expense for the fourth quarter of 2017 by the same amount. As a result, Mattel’s third quarter and fourth quarter 2017 net loss and net loss per share were understated by 15% and overstated by 63%, respectively. In addition, the SEC’s order finds that, at the time, Mattel had no internal control specifically related to calculating a valuation allowance. As explained in the order, until Mattel’s November 2019 restatement, the $109 million tax expense error remained uncorrected, and the lack of internal control for financial reporting related to the error remained undisclosed. As alleged, neither Mattel’s CEO nor audit committee was informed of the $109 million error.”
“ United States SEC Fines Barbie-Maker Mattel $3.5 Million for Financial Misrepresentation in 2017 with $109 Million Error, Former PwC Audit Partner Knowingly Did Not Report Error “
Mattel is a leading global toy company and owner of one of the strongest catalogs of children’s and family entertainment franchises in the world. We engage consumers through our portfolio of iconic brands, including Barbie, Hot Wheels, Fisher-Price, American Girl, Thomas & Friends, UNO, Masters of the Universe, Monster High and MEGA, as well as other popular intellectual properties that we own or license in partnership with global entertainment companies. Our offerings include film and television content, gaming and digital experiences, music, and live events. We operate in more than 35 locations and our products are sold in more than 150 countries in collaboration with the world’s leading retail and ecommerce companies.
United States SEC Statement
SEC Charges Mattel with Financial Misstatements and Former PwC Audit Partner with Improper Professional Conduct
21st October 2022 – The Securities and Exchange Commission today announced that California-based Mattel Inc. has agreed to pay $3.5 million to settle charges relating to misstatements in its third and fourth quarter 2017 financial statements. Separately, the SEC is initiating litigation against Joshua Abrahams, a former audit partner at PricewaterhouseCoopers LLP, or PwC, to determine whether he engaged in improper professional conduct and violated auditor independence rules.
According to the SEC’s order, Mattel understated the tax-related valuation allowance for the third quarter of 2017 by $109 million and overstated the tax expense for the fourth quarter of 2017 by the same amount. As a result, Mattel’s third quarter and fourth quarter 2017 net loss and net loss per share were understated by 15% and overstated by 63%, respectively. In addition, the SEC’s order finds that, at the time, Mattel had no internal control specifically related to calculating a valuation allowance. As explained in the order, until Mattel’s November 2019 restatement, the $109 million tax expense error remained uncorrected, and the lack of internal control for financial reporting related to the error remained undisclosed. As alleged, neither Mattel’s CEO nor audit committee was informed of the $109 million error.
The SEC’s separate order against Abrahams alleges that he violated numerous professional standards in the third quarter 2017 interim review and the 2017 annual audit of Mattel’s financial statements. According to the order, Abrahams failed to verify that the uncorrected $109 million error was documented, despite knowing of it, and failed to communicate the error to Mattel’s audit committee. The order further alleges that Abrahams failed to maintain independence by providing prohibited human resource advice to Mattel, including suggesting to Mattel’s then-CFO which candidate would be the best fit for a senior position at the company, as well as who should not be hired. The matter involving Abrahams will be scheduled for a public hearing before the Commission to decide if the Enforcement Division has proven the allegations in the order and what, if any, remedial actions are appropriate.
“An auditor’s adherence to professional standards and independence is critical to preserving investors’ trust in a company’s financial statements,” said Alka N. Patel, Associate Director of the Los Angeles Regional Office. “Auditors who advise their clients on who to hire will have an interest in the success of such hires and could therefore be less critical of their effectiveness, all of which undermines the auditor’s independence.”
The SEC’s order against Mattel finds that it violated the negligence-based antifraud provisions and the reporting, books and records, and internal controls provisions of the securities laws. Without admitting or denying these findings, Mattel agreed to a cease-and-desist order and to pay a $3.5 million civil penalty. The SEC’s order also notes that, in determining to accept Mattel’s settlement offer, the Commission took into account the company’s cooperation with the SEC’s investigation and its remediation.
The SEC’s investigation was conducted by Tony Regenstreif and Lorraine Pearson and was supervised by Victoria A. Levin and Rhoda Chang. The litigation against Abrahams will be led by Stephen Kam and supervised by Gary Y. Leung.
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