[Federal Register Volume 76, Number 213 (Thursday, November 3, 2011)]
[Notices]
[Pages 68167-68170]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-28558]


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CONSUMER PRODUCT SAFETY COMMISSION

[CPSC Docket No. 12-C0003]


Spin Master, Inc. and Spin Master, Ltd., Provisional Acceptance 
of a Settlement Agreement and Order

AGENCY: Consumer Product Safety Commission.

ACTION: Notice.

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[[Page 68168]]

SUMMARY: It is the policy of the Commission to publish settlements 
which it provisionally accepts under the Consumer Product Safety Act in 
the Federal Register in accordance with the terms of 16 CFR 1118.20(e). 
Published below is a provisionally-accepted Settlement Agreement with 
Spin Master, Inc. and Spin Master, Ltd., containing a civil penalty of 
$1,300,000.00.

DATES: Any interested person may ask the Commission not to accept this 
agreement or otherwise comment on its contents by filing a written 
request with the Office of the Secretary by November 18, 2011.

ADDRESSES: Persons wishing to comment on this Settlement Agreement 
should send written comments to the Comment 12-C0003, Office of the 
Secretary, Consumer Product Safety Commission, 4330 East West Highway, 
Room 820, Bethesda, Maryland 20814-4408.

FOR FURTHER INFORMATION CONTACT: Seth B. Popkin, Lead Trial Attorney, 
Division of Compliance, Office of the General Counsel, Consumer Product 
Safety Commission, 4330 East West Highway, Bethesda, Maryland 20814-
4408; telephone (301) 504-7612.

SUPPLEMENTARY INFORMATION:  The text of the Agreement and Order appears 
below.

    Dated: October 26, 2011.
 Todd A. Stevenson,
Secretary.

Settlement Agreement

    1. In accordance with 16 CFR 1118.20, Spin Master, Inc. 
(``SMI'') and Spin Master Ltd. (``SML'') (collectively ``Spin 
Master''), and U.S. Consumer Product Safety Commission 
(``Commission'') staff (``Staff''), enter into this Settlement 
Agreement (``Agreement''). The Agreement and the incorporated 
attached Order (``Order'') settle staff's allegations set forth 
below.

Parties

    2. Staff is the staff of the Commission, an independent federal 
regulatory agency established pursuant to, and responsible for, the 
enforcement of the Consumer Product Safety Act, 15 U.S.C. 2051-2089 
(``CPSA'').
    3. SMI is a corporation, organized and existing under the laws 
of Delaware, with its principal offices located in Los Angeles, 
California. At all relevant times, SMI imported and sold toys.
    4. SML is a corporation, organized and existing under the laws 
of Canada, with its principal offices located in Toronto, Ontario, 
Canada. At all relevant times, SML developed and marketed toys.
    5. At all relevant times, SMI was and is a wholly-owned 
subsidiary of Spin Master US Holdings, Inc., which is a wholly-owned 
subsidiary of SML.

Staff Allegations

    6. From on or about April 16, 2007, to on or about November 7, 
2007, SMI imported into the United States, sold to U.S. consumers, 
and sold to U.S. retailers, approximately 750,000 units of Aqua 
Dots. Aqua Dots were children's arts and crafts toys that consisted 
of tiny beads of different colors that stuck together when sprayed 
with water, allowing children to create various shapes and designs. 
Aqua Dots were marketed and sold in different kits with various 
accessories.
    7. Aqua Dots are ``consumer product[s],'' and, at all relevant 
times, SMI was a ``manufacturer'' and ``retailer'' of those consumer 
products, and SML was a ``manufacturer'' of those consumer products, 
which were ``distributed in commerce,'' as those terms are defined 
in CPSA sections 3(a)(5), (8), (11), and (13), 15 U.S.C. 2052(a)(5), 
(8), (11), and (13).
    8. By mid-October 2007, Spin Master had received reports that 
children and a dog had become ill and received emergency medical 
treatment after ingesting Aqua Dots; however, Spin Master failed to 
report to the Commission.
    9. On October 18, 2007, Spin Master learned that Aqua Dots 
contained 1,4-butylene glycol (``TMG''). TMG is a chemical that, 
upon ingestion, metabolizes to gamma hydroxybutyrate (GHB), a 
Schedule I controlled substance. On October 19, 2007, Spin Master 
received information that TMG is harmful if swallowed, and that, 
upon ingestion, it targets the kidneys and central nervous system.
    10. In the days and weeks that followed, Spin Master continued 
to receive reports of children falling ill after ingesting Aqua 
Dots. The firm also received reports of children falling ill after 
ingesting a similar product manufactured by the same overseas 
factory using the same ingredients list containing TMG.
    11. On November 2, 2007, Spin Master received a report that a 
child became ill after ingesting Aqua Dots. On November 5, 2007, 
Commission staff contacted Spin Master and notified them of that 
ingestion incident, which had occurred in October 2007.
    12. On November 7, 2007, Spin Master, in cooperation with the 
Commission, voluntarily recalled the product.
    13. In the press release announcing the recall, Spin Master 
acknowledged that ``[c]hildren who swallow the beads can become 
comatose, develop respiratory depression, or have seizures.''
    14. While the firm had enlisted an outside testing agency to 
evaluate the toxicity of the product, the testing was inadequate. 
Notwithstanding the testing results, the incident data reflective of 
human experience suggested that the product was toxic.
    15. During the relevant time, Spin Master obtained information 
that reasonably supported the conclusion that Aqua Dots contained a 
defect or possible defect that could create a substantial product 
hazard, or that Aqua Dots created an unreasonable risk of serious 
injury or death. Accordingly, CPSA sections 15(b)(3) and (4), 15 
U.S.C. 2064(b)(3) and (4), required Spin Master to inform the 
Commission immediately of the defect and risk.
    16. Spin Master knowingly failed to inform the Commission 
immediately about Aqua Dots, as required by CPSA sections 15(b)(3) 
and (4), 15 U.S.C. 2064(b)(3) and (4), and as the term ``knowingly'' 
is defined in CPSA section 20(d), 15 U.S.C. 2069(d). Under CPSA 
section 19(a)(4), 15 U.S.C. 2068(a)(4), these failures constituted 
prohibited acts, and pursuant to CPSA section 20, 15 U.S.C. 2069, 
subjected Spin Master to civil penalties.
    17. Aqua Dots are ``toxic'' within the meaning of FHSA section 
2(g), 15 U.S.C. 1261(g), and are a ``hazardous substance'' within 
the meaning of FHSA section 2(f)(1)(A), 15 U.S.C. 1261(f)(1)(A).
    18. As a toy or other article intended for use by children that 
is a hazardous substance, or that contains a hazardous substance 
that is susceptible to access by a child to whom such toy or article 
is entrusted, Aqua Dots are a ``banned hazardous substance'' within 
the meaning of FHSA section 2(q)(1)(A), 15 U.S.C. 1261(q)(1)(A).
    19. During the relevant time, under FHSA Sec.  5(c)(5), 15 
U.S.C. 1264(c)(5), Spin Master acquired knowledge that Aqua Dots 
were toxic and constituted a banned hazardous substance, and were 
prohibited from being imported and sold. Pursuant to FHSA section 
5(c)(1), 15 U.S.C. 1264(c)(1), Spin Master's prohibited acts 
subjected it to civil penalties.

Spin Master's Responsive Allegations

    20. Spin Master denies staff's allegations that Spin Master 
knowingly violated the CPSA and FHSA; and Spin Master denies any 
liability and wrongdoing.
    21. Spin Master desires to settle this matter without the 
expense of litigation.
    22. The Agreement and the payments made thereunder are made in 
compromise of disputed and unproven allegations and are not 
admissions of liability of any kind, whether legal or factual.
    23. Spin Master, Inc. was the distributor of Aqua Dots in the 
United States, and was not involved in the design or manufacture, 
nor was it the creator or inventor, of Aqua Dots. Spin Master Ltd., 
located in Toronto, Canada, was the parent of Spin Master, Inc.
    24. Spin Master had no involvement in the production of the 
product and was not given any insight into the chemical composition 
of the product, which at all times remained a closely guarded trade 
secret by the manufacturer.
    25. Spin Master ensured the product underwent all legally 
required testing under FHSA regulations, CPSC lead content 
requirements, Canadian Hazardous Products regulations, and ASTM 
labeling standards before distribution of the product began, and the 
product passed all such testing. The distributor, SMI, began 
distributing the product in the United States in April 2007. 
Approximately 1,335,151 units of Aqua Dots were sold.
    26. Spin Master went above and beyond all legally required 
testing and engaged a highly regarded independent testing agency to 
conduct live animal acute toxicity testing (``live animal testing'') 
on the product on June 6, 2007.
    27. On August 10, 2007, Spin Master received and reasonably 
relied upon the

[[Page 68169]]

official live animal testing results from the independent testing 
agency that stated: ``[the product] MEETS the following 
requirement(s): Classification of not being toxic as defined in and 
tested per 16 CFR 1500.3(c)(2)(i)(A), `Acute oral toxicity' (FHSA 
regulations.)'' SMI received oral confirmation of this test result 
as early as August 1, 2007.
    28. It became apparent only after the November 7, 2007 recall 
that the live animal toxicity testing conducted by independent 
testing agencies was not performed at an appropriate standard of 
professional care.
    29. In October 2007, Spin Master was advised of ingestion 
incidents arising from the ingestion of large quantities of a 
similar product and that governmental authorities in countries other 
than the United States had investigated those incidents and found 
that product to be safe.
    30. On October 18, 2007, Spin Master was advised that the 
manufacturer of the product had switched the chemical formulation 
from 1,5 Pentamethylene Glycol to contain 1,4-Butylene Glycol 
(``TMG''). Upon being advised of the chemical switch, the 
distributor began investigating the product. On October 19, 2007, 
the distributor received a Material Safety Data Sheet (``MSDS'') for 
TMG.
    31. On October 25, 2007, Spin Master was advised of the results 
of a Toxicological Risk Assessment performed by a board-certified 
toxicologist, which stated that none of the ingredients in the 
product were banned or restricted for use in consumer products in 
the United States, and that the product containing TMG would be safe 
under the FHSA regulations when used as intended or under 
circumstances involving reasonably foreseeable misuse, assuming that 
as many as 50 beads would be ingested in a single event. The 
distributor was also advised that 4 grams of the product, or 50 
beads, would have to be consumed to cause significant harm by 
ingestion.
    32. In early November 2007, Spin Master received a detailed 
report of an ingestion incident involving the product.
    33. On November 7, 2007, Spin Master voluntarily recalled the 
product in conjunction and cooperation with the Commission.

 Agreement of the Parties

    34. Under the CPSA and FHSA, the Commission has jurisdiction 
over this matter and, for purposes of this agreement only, over Spin 
Master.
    35. The parties enter into the Agreement for settlement purposes 
only. The Agreement does not constitute an admission by Spin Master, 
nor does it constitute a determination by the Commission, that Spin 
Master knowingly violated the CPSA and FHSA, or a concession by 
either party of the accuracy of the representations set forth in the 
other party's Responsive Allegations.
    36. In settlement of staff's allegations, Spin Master shall pay 
a civil penalty in the total amount of one million three hundred 
thousand dollars ($1,300,000.00). The civil penalty shall be paid in 
two (2) installments as follows: six hundred fifty thousand dollars 
($650,000.00) shall be paid on or before January 10, 2012; and six 
hundred fifty thousand dollars ($650,000.00) shall be paid on or 
before January 10, 2013. Both payments shall be made electronically 
to the Commission via: http://www.pay.gov.
    37. Upon provisional acceptance of the Agreement, the Agreement 
shall be placed on the public record and published in the Federal 
Register, in accordance with the procedures set forth in 16 CFR 
1118.20(e). In accordance with 16 C.F.R. Sec.  1118.20(f), if the 
Commission does not receive any written request not to accept the 
Agreement within fifteen (15) calendar days, the Agreement shall be 
deemed finally accepted on the sixteenth (16th) calendar day after 
the date it is published in the Federal Register.
    38. Upon the Commission's final acceptance of the Agreement and 
issuance of the final Order, Spin Master knowingly, voluntarily, and 
completely waives any rights it may have in this matter to the 
following: (1) An administrative or judicial hearing; (2) judicial 
review or other challenge or contest of the validity of the Order or 
of the Commission's actions; (3) a determination by the Commission 
of whether Spin Master failed to comply with the CPSA, the FHSA, and 
their underlying regulations; (4) a statement of findings of fact 
and conclusions of law; and (5) any claims under the Equal Access to 
Justice Act.
    39. The parties may publicize the terms of the Agreement and the 
Order.
    40. The Agreement and the Order shall apply to, and be binding 
upon, Spin Master and each of its successors and assigns.
    41. The Commission issues the Order under the provisions of the 
CPSA and FHSA, and violation of the Order may subject Spin Master 
and each of its successors and assigns to appropriate legal action.
    42. The Agreement may be used in interpreting the Order. The 
Agreement constitutes the entire agreement and understanding between 
the parties related to the subject matter contained herein and is 
subject to the terms of the Order. Understandings, agreements, 
representations, or interpretations apart from those contained in 
the Agreement and the Order may not be used to vary or contradict 
their terms. The Agreement shall not be waived, amended, modified, 
or otherwise altered without written agreement thereto, executed by 
the party against whom such waiver, amendment, modification, or 
alteration is sought to be enforced.
    43. If any provision of the Agreement and the Order is held to 
be illegal, invalid, or unenforceable under present or future laws 
effective during the terms of the Agreement and the Order, such 
provision shall be fully severable. The balance of the Agreement and 
the Order shall remain in full force and effect, unless the 
Commission and Spin Master agree that severing the provision 
materially affects the purpose of the Agreement and the Order.

SPIN MASTER, INC.

Dated: October 19, 2011 by:

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Ronnen Harary,
Director and CEO, 5890 West Jefferson Boulevard, Suite E, Los 
Angeles, CA 90116.

SPIN MASTER LTD.

Dated: October 19, 2011 by:

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Ronnen Harary,
Director and CEO, 450 Front Street West, Toronto, Ontario.

Dated: October 19, 2011 by:

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Ronald Y. Rothstein, Esq.,
Winston & Strawn LLP, 35 West Wacker Drive, Chicago, IL 60601, 
Counsel for Spin Master, Inc., and Spin Master Ltd.

Dated: October 19, 2011 by:

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Frederick B. Locker, Esq.,
Locker, Greenberg & Brainin, 420 5th Avenue, Suite 2602, New York, 
NY 10018, Counsel for Spin Master, Inc., and Spin Master Ltd.

U.S. CONSUMER PRODUCT SAFETY COMMISSION STAFF
Office of the General Counsel.

Cheryl A. Falvey,
General Counsel.

Mary B. Murphy,
Assistant General Counsel.

Dated: October 19, 2011 by:

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Seth B. Popkin,
Lead Trial Attorney.

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Renee McCune,
Attorney.

Order

    Upon consideration of the Settlement Agreement entered into 
among Spin Master, Inc. and Spin Master Ltd. (collectively ``Spin 
Master''), and the U.S. Consumer Product Safety Commission 
(``Commission'') staff, and the Commission having jurisdiction over 
the subject matter and, for purposes of this agreement only, over 
Spin Master, and it appearing that the Settlement Agreement and the 
Order are in the public interest, it is
    Ordered, that the Settlement Agreement be, and hereby is, 
accepted; and it is
    Further ordered, that Spin Master shall pay a civil penalty in 
the total amount of one million three hundred thousand dollars 
($1,300,000.00). The civil penalty shall be paid in two (2) 
installments as follows: Six hundred fifty thousand dollars 
($650,000.00) shall be paid on or before January 10, 2012; and six 
hundred fifty thousand dollars ($650,000.00) shall be paid on or 
before January 10, 2013. Both payments shall be made electronically 
to the Commission via: http://www.pay.gov. Upon the failure of Spin 
Master to make any of the foregoing payments when due, the total 
amount of the civil penalty shall become due and payable 
immediately, and interest on the unpaid amount shall accrue and be 
paid by Spin Master at the federal legal rate of interest set forth 
at 28 U.S.C. 1961(a) and (b).
    Provisionally accepted and provisional Order issued on the 26th 
day of October, 2011.

BY ORDER OF THE COMMISSION:

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Todd A. Stevenson,

[[Page 68170]]

Secretary, U.S. Consumer Product Safety Commission.

[FR Doc. 2011-28558 Filed 11-2-11; 8:45 am]
BILLING CODE 6355-01-P