Mattel agreed to pay $3.5 million to the Securities and Exchange Commission to settle charges related to what the agency said were misstatements about its financials in 2017. 

The SEC said that Mattel understated a tax-related valuation allowance by $109 million in Q3 of 2017 and overstated its tax expense by the same amount in 2017, according to an SEC release. Mattel did not immediately reply to Retail Dive's request for comment.

The effect was to understate and then overstate the company’s net loss in Q3 and Q4, respectively, of that year. The erroneous financials were still uncorrected when the toy giant was selling new bonds to the market in 2018. Mattel later canceled the note offering after learning of the error in a whistleblower letter.

The SEC found that Mattel had no internal controls in place to prevent such an issue. The error went uncorrected until November 2019 and the lack of internal control to catch the error went undisclosed, according to the agency. 

In its order against Mattel, the SEC found that the company violated negligence-based antifraud provisions as well as securities laws around records, reporting and internal controls. Mattel agreed to a cease-and-desist order as well as the $3.5 million penalty without admitting or denying the SEC’s charges.

The SEC also said it is initiating litigation against a former audit partner at PricewaterhouseCoopers, Joshua Abrahams, who was responsible for Mattel’s external audit at the time. The SEC alleged that 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 agency also accused Abrahams of breaching professional standards of 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.”