Avon Seeks $62 Million Settlement In China Bribery Case

Sherylin S. McCoy,Avon,CEO


Avon Products Inc is seeking approval of a $62 million settlement of a U.S. lawsuit accusing the cosmetics company of defrauding shareholders by concealing its failure to stop workers from bribing officials in China to win business.

The proposed settlement was filed on Tuesday with the U.S. District Court in Manhattan and requires a judge's approval.

It resolves claims that Avon, former Chief Executive Andrea Jung and former Chief Financial Strategy Officer Charles Cramb, intended to mislead shareholders from 2006 to 2011 about the company's ability to comply with the federal Foreign Corrupt Practices Act, which prohibits bribing foreign officials.

Shareholders led by two German investment funds said Avon embraced a corporate culture that was actively hostile to effective oversight and concealed its dependence on corrupt activity such as dinner and karaoke events to boost sales.

Insurers would pay $60 million of the settlement, while Avon would pay $2 million, the New York-based company said. Avon denied wrongdoing in agreeing to settle.

Last Dec. 17, Avon agreed to pay $135 million in criminal and civil penalties and accept a deferred prosecution agreement to end U.S. probes into its China unit, including the alleged use of gifts such as Gucci bags and Tiffany pens.

The securities fraud lawsuit was brought on behalf of shareholders from July 31, 2006 to Oct. 26, 2011. It was led by LBBW Asset Management Investmentgesellschaft mbH and SGSS Deutschland Kapitalanlagegesellschaft mbH.

Law firms led by Motley Rice plan to seek legal fees of up to 30 percent of the settlement fund, court papers show.

Jung had been Avon's chief executive for 12 years when the company announced plans to replace her in December 2011.

The case is City of Brockton Retirement System et al v. Avon Products Inc et al, U.S. District Court, Southern District of New York, No. 11-04665.

(Reporting by Jonathan Stempel in New York)

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