JURIST - Paper Chase: Mattel board sued for breach of fiduciary duties in wake of massive toy recalls

[JURIST] The Sterling Heights Police and Fire Retirement System, a public Michigan pension fund, has filed a derivative action [press release] alleging misconduct by Mattel [corporate website], including failing to report toy defects to federal regulators, and in the case of one current and three former directors, engaging in insider trading. The lawsuit claims that Mattel's board of directors breached their fiduciary duties by allowing the company to purposely delay reports to the Consumer and Safety Product Commission (CPSC) [official website], which provides a 24-hour reporting period, of safety hazards in its toys in order to prevent a downturn in the value of the company's stock. Mattel has recalled approximately 21 million toys since August because they contained illegal lead paint or magnets that could become detached and cause injuries to children. The derivative suit calls for compensatory and other damages for harm suffered by the corporation due to Mattel's alleged failure to prevent the distribution and production of hazardous toys and the lapses in reporting. The suit also alleges that four directors violated laws against insider trading by dumping approximately $33 million in stock from January through May 2007 in Mattel stock in advance of public disclosure of the safety problems. While Mattel has not responded publicly yet to the lawsuit, it has told the US House of Representatives Committee on Energy and Commerce [official website] that the stock sales by corporate directors occurred before the discovery of safety hazards in June. The lawsuit was filed Wednesday in the Court of Chancery of Delaware [official website], on behalf of the pension fund, which owns 23,600 Mattel shares.

Since announcing recalls of approximately 21 million toys, Mattel has also been sued in several class action and personal injury lawsuits filed by consumers alleging harm to children who came in contact with the recalled toys and requesting that Mattel pay for testing of the potentially affected children. The New York Times has more. Reuters has additional coverage.

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