Summer 2025

The Barbie movie premiered in theaters in July 2023 and achieved more than $1 billion in global ticket sales. One detail in the movie that may have gone unnoticed was when Ruth, a character who appeared to live at Mattel’s headquarters, mentioned getting into trouble with the IRS. Ruth – an homage to one of the co-founders of Mattel and Barbie’s 1959 creator, Ruth Handler – did, in fact, get into hot water with the government. While the Barbie movie correctly depicted Ruth facing trouble, it inaccurately identified the agency involved. It was the Securities and Exchange Commission.

Handler and others were charged with conspiracy and making false financial statements by overstating revenues and income between 1971 and 1973, which Mattel ultimately admitted to in 1974.¹ The reason for Mattel’s fraudulent actions was to influence the market price of their stock. Handler was sentenced to 2,500 hours of community service and five years of probation.²

Unfortunately, the Mattel case is not the sole instance of a toy company being accused of playing financial games. Over the years, the toy industry has had several notable fraud cases, including those involving prominent toy companies, such as Toys “R” Us, Funko Inc., Hasbro Inc., LeapFrog Enterprises Inc., and Tyco International. We can’t discuss all of them in this column, so we selected two particularly interesting cases to highlight.

In 2020, a fraud case was filed against Toys “R” Us. Executives were accused of making false representations to secure loans during bankruptcy, which they filed in 2017. The alleged false statements included misrepresenting the company’s sales projections and its viability as a going concern, leading to significant financial losses.

The former executives and board members were accused of giving preference to their own financial interests over those of the creditors during the company’s bankruptcy. Allegations included making false representations to secure loans for a costly restructuring while knowing they couldn’t meet the terms and timing bonuses to circumvent bankruptcy rules.³ This case was ultimately resolved in 2022, though the terms of the settlement remain confidential.⁴

The LeapFrog fraud case centered around allegations that the company misrepresented its financial health, which misled investors and stakeholders. It was alleged that they inflated their sales projections for the 2003 fiscal year by either failing to disclose or misrepresenting several key issues that could impact their projected earnings.

In October 2003, LeapFrog announced that they had failed to meet sales projections, resulting in a significant 25% decline in its stock. A class-action lawsuit was filed in April 2005, citing violations of the Securities Exchange Act of 1934 resulting from false and misleading statements and omissions. This case was ultimately resolved in 2008, with LeapFrog agreeing to a settlement of $2.3 million.⁵

The reason we picked these three incidents (Mattel, Toys “R” Us, and LeapFrog) is to draw attention to the importance of strong corporate governance, ethical practices, and rigorous regulatory compliance in maintaining integrity and trustworthiness – not only in the toy industry but for all companies. Fraudulent activity will lead to significant consequences, including financial losses, reputational damage, and regulatory scrutiny.

The stain of fraud spreads. Its repercussions can extend beyond the company responsible:

• Investors and stakeholders can incur significant financial losses due to investment decisions based on falsified or misrepresented information. They could also suffer financial losses due to a decline in the company’s stock value and suspension of dividends if the company ends up in financial distress. If investors or stakeholders are companies, this can cause their own financial statements to be impacted as well.
• Employees will lose their jobs if the company collapses. Investments in company stock or retirement plans may also result in additional personal financial losses to the affected employees.
• Third-party toy manufacturers may be adversely affected by any fraudulent activity at a company that sells their products. They could have extended credit or invested their own resources based on false information from the company. This could lead to financial losses to the manufacturers, including nonpayment for delivered products and legal costs, among other expenses.
• Public trust can be impacted due to the widespread media coverage of companies charged with fraud. Public sentiment can turn on a company, which could lead to further economic losses by public boycotts.

Fraud cases are not some sort of fun and games; they have extensive and detrimental impacts on the companies embroiled in fraud as well as the broader social and economic environment. Corporate frauds distort market perceptions, causing inefficient capital allocation that can have a ripple effect on the economy.

While public companies (and others) may be required to have annual financial statement audits that have an affirmative duty to address the risk of fraud, only 3% of all occupational frauds are discovered from financial statement audits. Internal audits discover 14% of frauds, and tips uncover 43% of all occupational frauds.⁶

For CPAs, the implications of discovered fraud are significant, due to increased scrutiny and potential legal liability. But what we do is important. When CPAs attest to the accuracy and reliability of financial reporting, we are protecting the interests of the public and the integrity of the financial markets.

CPAs can implement a few key practices to help solidify the integrity of financial markets:

• Adhere to our professional standards and ethical guidelines, as provided in the AICPA’s Code of Professional Conduct.
• Establish strong internal controls.
• Ensure a clear segregation of duties.
• Maintain effective communications.

In addition to these keys, CPAs need to know what we are talking about when we offer advice and guidance. Therefore, it is vital to keep your education up to date. Fraud and misrepresentation are ever changing, and it is becoming even more challenging with new technologies. 

¹ www.businessinsider.com/barbie-inventor-ruth-handler-mattel-irs-sec-false-financial-statements-2023-7

² www.museumofplay.org/app/uploads/2022/01/2-3-book-review-5.pdf

³ www.forbes.com/sites/joanverdon/2022/01/20/former-toys-r-us-execs-board-accused-of-fraud-in-bankruptcy-decisions

⁴ www.retaildive.com/news/toys-r-us-creditors-reach-resolution-former-execs-lawsuit-bankruptcy/634240

⁵ https://securities.stanford.edu/filings-case.html?id=102926

⁶ www.acfe.com/-/media/files/acfe/pdfs/rttn/2024/2024-report-to-the-nations.pdf

The Barbie movie premiered in theaters in July 2023 and achieved more than $1 billion in global ticket sales. One detail in the movie that may have gone unnoticed was when Ruth, a character who appeared to live at Mattel’s headquarters, mentioned getting into trouble with the IRS. Ruth – an homage to one of the co-founders of Mattel and Barbie’s 1959 creator, Ruth Handler – did, in fact, get into hot water with the government. While the Barbie movie correctly depicted Ruth facing trouble, it inaccurately identified the agency involved. It was the Securities and Exchange Commission.

Handler and others were charged with conspiracy and making false financial statements by overstating revenues and income between 1971 and 1973, which Mattel ultimately admitted to in 1974.¹ The reason for Mattel’s fraudulent actions was to influence the market price of their stock. Handler was sentenced to 2,500 hours of community service and five years of probation.²

Unfortunately, the Mattel case is not the sole instance of a toy company being accused of playing financial games. Over the years, the toy industry has had several notable fraud cases, including those involving prominent toy companies, such as Toys “R” Us, Funko Inc., Hasbro Inc., LeapFrog Enterprises Inc., and Tyco International. We can’t discuss all of them in this column, so we selected two particularly interesting cases to highlight.

In 2020, a fraud case was filed against Toys “R” Us. Executives were accused of making false representations to secure loans during bankruptcy, which they filed in 2017. The alleged false statements included misrepresenting the company’s sales projections and its viability as a going concern, leading to significant financial losses.

The former executives and board members were accused of giving preference to their own financial interests over those of the creditors during the company’s bankruptcy. Allegations included making false representations to secure loans for a costly restructuring while knowing they couldn’t meet the terms and timing bonuses to circumvent bankruptcy rules.³ This case was ultimately resolved in 2022, though the terms of the settlement remain confidential.⁴

The LeapFrog fraud case centered around allegations that the company misrepresented its financial health, which misled investors and stakeholders. It was alleged that they inflated their sales projections for the 2003 fiscal year by either failing to disclose or misrepresenting several key issues that could impact their projected earnings.

In October 2003, LeapFrog announced that they had failed to meet sales projections, resulting in a significant 25% decline in its stock. A class-action lawsuit was filed in April 2005, citing violations of the Securities Exchange Act of 1934 resulting from false and misleading statements and omissions. This case was ultimately resolved in 2008, with LeapFrog agreeing to a settlement of $2.3 million.⁵

The reason we picked these three incidents (Mattel, Toys “R” Us, and LeapFrog) is to draw attention to the importance of strong corporate governance, ethical practices, and rigorous regulatory compliance in maintaining integrity and trustworthiness – not only in the toy industry but for all companies. Fraudulent activity will lead to significant consequences, including financial losses, reputational damage, and regulatory scrutiny.

The stain of fraud spreads. Its repercussions can extend beyond the company responsible:

• Investors and stakeholders can incur significant financial losses due to investment decisions based on falsified or misrepresented information. They could also suffer financial losses due to a decline in the company’s stock value and suspension of dividends if the company ends up in financial distress. If investors or stakeholders are companies, this can cause their own financial statements to be impacted as well.
• Employees will lose their jobs if the company collapses. Investments in company stock or retirement plans may also result in additional personal financial losses to the affected employees.
• Third-party toy manufacturers may be adversely affected by any fraudulent activity at a company that sells their products. They could have extended credit or invested their own resources based on false information from the company. This could lead to financial losses to the manufacturers, including nonpayment for delivered products and legal costs, among other expenses.
• Public trust can be impacted due to the widespread media coverage of companies charged with fraud. Public sentiment can turn on a company, which could lead to further economic losses by public boycotts.

Fraud cases are not some sort of fun and games; they have extensive and detrimental impacts on the companies embroiled in fraud as well as the broader social and economic environment. Corporate frauds distort market perceptions, causing inefficient capital allocation that can have a ripple effect on the economy.

While public companies (and others) may be required to have annual financial statement audits that have an affirmative duty to address the risk of fraud, only 3% of all occupational frauds are discovered from financial statement audits. Internal audits discover 14% of frauds, and tips uncover 43% of all occupational frauds.⁶

For CPAs, the implications of discovered fraud are significant, due to increased scrutiny and potential legal liability. But what we do is important. When CPAs attest to the accuracy and reliability of financial reporting, we are protecting the interests of the public and the integrity of the financial markets.

CPAs can implement a few key practices to help solidify the integrity of financial markets:

• Adhere to our professional standards and ethical guidelines, as provided in the AICPA’s Code of Professional Conduct.
• Establish strong internal controls.
• Ensure a clear segregation of duties.
• Maintain effective communications.

In addition to these keys, CPAs need to know what we are talking about when we offer advice and guidance. Therefore, it is vital to keep your education up to date. Fraud and misrepresentation are ever changing, and it is becoming even more challenging with new technologies. 

¹ www.businessinsider.com/barbie-inventor-ruth-handler-mattel-irs-sec-false-financial-statements-2023-7

² www.museumofplay.org/app/uploads/2022/01/2-3-book-review-5.pdf

³ www.forbes.com/sites/joanverdon/2022/01/20/former-toys-r-us-execs-board-accused-of-fraud-in-bankruptcy-decisions

⁴ www.retaildive.com/news/toys-r-us-creditors-reach-resolution-former-execs-lawsuit-bankruptcy/634240

⁵ https://securities.stanford.edu/filings-case.html?id=102926

⁶ www.acfe.com/-/media/files/acfe/pdfs/rttn/2024/2024-report-to-the-nations.pdf