Mattel Inc. (MAT) has been accused of manipulating the MGA probe. MGA Entertainment claims Mattel tried to influence the Canadian police while they were investigating a trade secrets theft complaint brought against it by Mattel.

The U.S. District Judge has ordered Mattel's Chief Security, Richard De Anda, to appear at a hearing on September 21, 2009. This hearing will address the MGA charge. Mattel had allegedly sent gifts to the law enforcement officials.

Mattel succeeded in obtaining the rights of MGA's Bratz doll last year after the jury found that the Bratz concept was sold to MGA by a former doll designer of Mattel during his contract tenure at Mattel.

MGA has also accused Mattel of copying Bratz with its Flavas and MyScene Barbie dolls and for other unfair business practices in an another lawsuit, of which a trial is scheduled for next year.

The economic slowdown has severely impacted discretionary consumer spending, which has deteriorated sharply in the United States and in many countries around the world. This has significantly impacted the balance sheets of toy manufacturers such as Mattel, Hasbro Inc. (HAS) and JAKKS Pacific Inc. (JAKK).

Mattel continues to feel the impact of the global recession and has recently faced difficulties with respect to margin pressures and deterioration in some of its core brands. The company has reported a significant drop in sales in the second quarter though the cost containment measures provided some relief.

Although the second quarter results contained some positive signs in light of the current economic environment, we expect these challenging macro conditions to continue to put pressure on Mattel's earnings throughout 2009.

However, we believe that as one of the dominant companies in the industry, the economic downturn may enable Mattel to strengthen its position at the expense of smaller rivals. Consequently, we have a Neutral recommendation on the shares of Mattel.