Avon Products, Inc. File Lawsuit Against Board of Directors

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Company Name(s): 
Avon Products
Case Name: 
Avon Products Derivative Case 07/22/2010
Case Status: 
Lawsuit Filed
Affected Securities
NYSE: AVP
Lawsuit Overview
Type of Lawsuit: 
Shareholder Derivative Action
Date Filed: 
07/22/2010
Court of Filing: 
New York State Court
Summary: 

An investor in AVP stock filed a lawsuit in New York Court on behalf of investors in Avon Products, Inc. (NYSE:AVP) alleging breaches of fiduciary duty by the board of directors of Avon in connection with Avon’s Foreign Corrupt Practices Act (FCPA) compliance problems.

In October 2008 the door-to-door cosmetics marketer Avon Products announced it notified the U.S. Securities and Exchange Commission (SEC) and Justice Department (DOJ) about its internal investigation of potentially improper payments to Chinese regulators. According to the complaint China had imposed a ban on door-to-door selling in the 1998, which initially forced Avon Products to market its products in stores, but in 2006 Avon received a “license by the Ministry of Commerce, People’s Republic of China […] to permit direct selling, i.e. door-to-door marketing”. Then in September 2008 the deputy director of the Foreign Fund Division of the Chinese Ministry of Commerce was detained for allegedly accepting bribes, so the lawsuit. Avon Products said in its October 2008 announcement that it was looking into whether certain travel, entertainment and other expenses in China might have "been improperly incurred." The Wall Street Journal reported that those possible wrongdoing under investigation include the alleged purchases of trips to France, New York, Canada and Hawaii for a Chinese government official with ties to Avon's business.

Three senior officials of Avon China, the president, chief financial officer and the head of corporate affairs and government relations at its China unit, as well as the head of Avon’s internal audit unit in New York have been accused of improperly providing travel, entertainment, and other expenses in China to a senior official in the Ministry of Commerce and have been put on administrative leave, so the lawsuit. In June 01, 2010 a special report entitled “U.S. Foreign Corrput Practices Act – No Minor Matter,” Fitch Ratings stated that Avon’s FCPA investigation had “exp[anded to a dozen or more countries”, so the lawsuit.
The plaintiff expects that Avon Products will lose “hundreds of millions of dollars” of assets due to legal liability and/or expenses to investigate, defend, and resolve the FCPA investigation and the inevitable criminal and civil litigation.

AVP shares recently traded at $29.44 per share, down from its 52weekHigh of $36.39 per share. Avon stock to drop from $34.76 per share in April 2010, to as low as $25.73 per share in June 2010. Avon Products shares declined already from over $38 per share in the beginning of October 2008 to $24.42 per share on October 24, 2008, and $19.65 per share in November 2008.