A federal court Monday dismissed a securities fraud lawsuit against Avon Products that alleged the company concealed that it didn’t stop bribery in China because doing that would have hurt its business there.
U.S. District Judge Paul Gardephe in Manhattan ruled there was insufficient evidence to show that former CEO Andrea Jung and former CFO Charles Cramb tried to deceive shareholder about Avon’s knowledge of bribery from 2006 to 2011.
“In a 59-page decision, Gardephe also said Avon shareholders did not show the company intended to deceive them about its ability to comply with the federal Foreign Corrupt Practices Act, which prohibits bribing foreign officials,” Reuters said.
In May this year, the beauty products company said it had reached an understanding with the DOJ and SEC for settlement of FCPA offenses.
The resolution will include payment of $135 million for “alleged violations of the books and records and internal control provisions of the FCPA,” Avon said.
The $135 million payment will include $68 million to the DOJ and $67 million to the SEC, the company said.
An Avon subsidiary in China will “enter a guilty plea in connection with alleged violations of the books and records provision of the FCPA,” Avon said in May.
The SEC and DOJ haven’t announced any resolution with Avon. Delays sometimes occur after settlements are reached in principle while lawyers haggle over wording of plea agreements and other documents.
Although Judge Gardephe on Monday granted Avon’s request to toss the shareholder lawsuit filed in 2011, he gave the plaintiffs permission to re-file an amended complaint, Bloomberg said.
The plaintiffs had alleged that statements by Avon were misleading because they didn’t publicly attribute the company’s success in China to the bribery of officials after the alleged illegal practices became known.
The judge said any misstatements alleged by the plaintiffs weren’t material.
Avon spent about $300 million investigating potential FCPA violations in China.
It disclosed the potential offenses in 2008. Two years earlier, the company won China’s first license given to a Western company to sell products door-to-door.
Avon is the world’s biggest door-to-door retailer of cosmetics.
In 2011, the company suspended four executives allegedly involved in bribery in China. Three were in China and one was in New York.
The shareholder lawsuit had alleged that top executives knew about the China compliance problems but paid a former head of internal audit a big severance package in 2006 in exchange for his silence.
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Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.
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