• Avon Securities Suit: Shareholders File Amended Complaint Alleging False Statements to Investors Regarding FCPA Compliance
  • March 26, 2012
  • Law Firm: Motley Rice - Mount Pleasant Office
  • An amended complaint was recently filed on behalf of a class of shareholders alleging that Avon Products, Inc., a leading global beauty company, failed to disclose material facts regarding the effectiveness of its internal controls. The amended complaint contains new information uncovered by the plaintiffs following an extensive investigation. The case is City of Brockton Retirement System v. Avon Products, Inc. et al., No. 1:11-cv-04665-PGG (S.D.N.Y.).

    In October 2008, Avon disclosed that it had begun an internal investigation into possible Foreign Corrupt Practices Act (FCPA) violations in China. Under the FCPA, it is illegal for a company to bribe foreign officials in order to obtain or retain a business benefit. Unbeknownst to investors, however, Avon allegedly paid bribes in violation of the FCPA as far back as 2004. This practice may have continued even after the company’s October 2008 disclosure.

    The action was originally filed in July 2011 on behalf of all persons who acquired Avon common stock between July 31, 2006 and May 24, 2011. The original complaint alleged that the defendants failed to disclose to the investing public that:

    (1) the company was violating the FCPA through the payment of illegal bribes

    (2) the company’s internal controls were severely deficient as they did not detect and stop these illegal payments

    (3) Avon’s sales and revenue in China and other important emerging markets were dependent on the company’s illegal practice of paying bribes.

    The amended complaint was filed on March 16, 2012, by court-appointed lead plaintiffs LBBW Asset Management Investmentgesellschaft mbH and SGSS Deutschland Kapitalanlagegesellschaft mbH, as well as the City of Brockton Retirement System (the original named plaintiff in the case) and two other institutional investors. The amended complaint extends the end of the class period from May 24 to Oct. 26, 2011. It was on Oct. 27, 2011, that the investing public learn that the U.S. Securities and Exchange Commission (SEC) had initiated a “formal” investigation into FCPA violations at Avon. Avon also acknowledged at that same time the existence of a second SEC probe into whether a senior company official had improperly disclosed information about Avon’s internal investigation to certain members of the financial community. Avon’s share price subsequently dropped by more than 18 percent in just one trading day.