SEC v. Avon Products Inc. (S.D.N.Y. 2014)
Case Details
- Case Name
- SEC v. Avon Products Inc. (S.D.N.Y. 2014)
- Foreign Official
- Unspecified Chinese government officials.
- Date of Conduct
-
2004 to 2008
- Nature of Business
- Avon Products, Inc. is a U.S.-based corporation headquartered in New York focusing on the sale of beauty, home, and health products. Throughout the relevant period, Avon had shares registered pursuant to Section 12(b) of the Exchange Act and traded on the New York Stock Exchange. Avon Products (China) Co. Ltd. is an indirect subsidiary of Avon that manufactures and sells Avon products in China. Avon China’s books and records were consolidated into Avon’s financial statements.
- Influence to be Obtained
- According to a civil complaint filed by the SEC, between 2004 and 2008, Avon China engaged in a regular practice of offering improper benefits to Chinese government officials responsible for awarding regulatory licenses and other officials with the authority to assist Avon China avoid fines and negative press. According to the SEC, Avon purposefully misreported the expenses in the Company’s books and records to conceal the improper activities.
The SEC claims that the benefits frequently took the form of expensive gifts, travel, and entertainment where no legitimate business purpose existed. On other occasions, Avon China officials paid government officials cash through false reimbursement submissions or payments, which Avon China recorded as fines. Avon China is also alleged to have paid a third-party consultant for interactions with government officials, even though Avon China officials were aware that the consultant’s invoices were false and that the consultant offered no legitimate services to the company.
In addition to the improper benefits described above, the SEC alleges that Avon failed to maintain adequate internal controls during the period in question. According to the complaint, during a 2005 global internal audit Avon discovered multiple red flags associated with Avon China’s activities. The SEC claims that, after much delay, Avon prepared a draft audit report stating that Avon China regularly offered gifts and meals to government officials implying that the benefits could potentially violate the FCPA. According to the SEC, upon further internal discussion between Avon executives, the vice president of internal audit was instructed to redraft the report to remove references to potential FCPA violations. Although Avon China was later ordered to implement remedial measures, the SEC claims no action was ever taken and that approximately three years after the improper practices were discovered, Avon China continued to engage in the same conduct. Only after a former Avon China executive wrote the CEO of the company describing Avon China’s practices did the Company commence an internal investigation and report the findings to the U.S. authorities in October 2008.
- Enforcement
- On December 17, 2014, the SEC announced that it settled its claims against Avon for violating the books-and-records and internal controls provisions of the FCPA. Accordingly, Avon agreed to pay approximately $67 million in penalties including $52,850,00 in disgorgement and $14,515,013 in prejudgment interest.
In a parallel proceeding by the DOJ, Avon and Avon China settled criminal charges by agreeing to pay approximately $67 million in corporate penalties and to retain an independent compliance monitor for an eighteen month period.
- Amount of the Value
- Approximately $8 million.
- Amount of Business Related to Payment
- Not Stated
- Intermediary
- Third-Party Consultants.
- Citizenship of Parent Entity
- United States
- Total Sanction
- $ 67,365,013
- Reporting Requirements
- No
- Total Combined Monetary Sanction
- $ 135,013,013
Defendants
Avon Products Inc.
- Citation
- SEC v. Avon Products Inc., No. 14-cv-9956 (S.D.N.Y. 2014).
- Other Statutory Provision
- None
- Disposition
- Complaint and Consent Order
- Defendant Jurisdictional Basis
- Issuer
- Defendant's Citizenship
- United States
