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Shareholders of embattled toy maker Mattel Inc. have filed a derivative lawsuit in Delaware State Court on behalf of the company against a dozen current and former directors including CEO Robert Eckert for delaying reports of product problems to the Consumer Protection Safety Commission. According to the October 10 complaint, Mattel’s three toy recalls since August due to lead paint and ingestible magnets on the toys prompted a stock price drop of more than 20% since it’s April 5 peak of $29.65 per share to a recent price of $23 per share. The case’s two breach of fiduciary duty claims accuse the defendants of profiting from artificially high stock prices while the government was in the dark. The plaintiffs said the delayed government notification also exposed the company to a laundry list of business risks, including government fines and penalties, damage to the company’s reputation and goodwill with customers and in the business community, loss of business Opportunities, loss of market value and shareholder equity, and higher legal fees to fight cases brought by injured parties. Sterling Heights Police & Fire Retirement System v. Eckert, No. 3285 (New Castle Co., Del., Ch.) The plaintiff seeks compensatory damages for Mattel, an order requiring the defendant stock sellers to disgorge profits made during the relevant period and fees for the plaintiff’s attorneys and experts. The company has repeatedly shirked its responsibilities to “come clean with regulators, consumers and investors” when safety problems in the company’s products, said Grant & Eisenhofer partner Jay Eisenhofer, who represents the plaintiff the Sterling Heights pension fund. “By consistently refusing to abide by federally mandated rules governing disclosure of product safety issues, Mattel has failed its stakeholders and regrettably used its illegal, drawn-out reporting to mislead investors as well as to cover up profit-taking by company insiders,” Mr. Eisenhofer added. Mattel did not respond to a request for comment.

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