Pension Fund Suing Mattel

DOVER, Del. - Attorneys for a Michigan pension fund alleged in a shareholder lawsuit filed Wednesday that Mattel has misled investors by delaying the reporting of defects in its toys to federal regulators.

The lawsuit, filed in Delaware's Court of Chancery, also accuses three current members and one former member of Mattel's board of directors of engaging in illegal insider trading by dumping more than $33 million in stock before the company's massive toy recalls this summer.

Since August, Mattel has announced three recalls of some 21 million toys because of dangers to children from lead paint or from tiny magnets that can be harmful if swallowed.

Attorneys for the Sterling Heights, Mich., police and fire pension fund allege that Mattel knew about the defects for months but failed to report them to the Consumer Product Safety Commission, as required by federal law. They allege that the company has withheld information about its products from the commission for years in order to prop up sales and avoid fines, thereby artificially inflating the value of Mattel's shares and breaching their fiduciary duties to shareholders.

Officials with El Segundo, Calif.-based Mattel did not immediately respond to a telephone call and e-mail seeking comment on the lawsuit.

'Disclosures relating to Mattel's latest recalls appear to follow Mattel's practice of willfully ignoring federal law,' the plaintiffs allege, noting that the commission levied a $1.1 million fine against Mattel's Fisher-Price division in 2001 for failing to report serious safety defects with Power Wheels toy vehicles.

The lawsuit also notes that Fisher-Price agreed to pay a $975,000 fine in March to settle allegations that it waited six months to report a choking hazard involving a nail fastener on a toy farm set after problems surfaced in 2002.

Mattel shares, which have traded as high as $29.71 in the past year, fell 9 cents to close at $22.66 Wednesday.