Avon Products is facing an Employee Retirement Income Security Act (ERISA) lawsuit over its handling of the company stock fund investment option in its retirement plan for employees.
The lawsuit filed in the U.S. District Court for the Southern District of New York claims that when Avon became aware that its foreign subsidiaries had engaged in violations of the Foreign Corrupt Practices Act (FCPA), it engaged in a cover up rather than make the investing public and participants in its retirement plan aware of the misconduct. The suit says the misinformation kept Avon’s stock trading at artificially high prices for years.
In October 2008, Avon disclosed that it was conducting an investigation into the possibility of misconduct in connection with its China operations. In October 2011, the Securities and Exchange Commission (SEC) announced it initiated its own investigation into Avon’s alleged FCPA violations. According to the lawsuit, Avon’s stock price steadily declined during this period through the announcement of a joint settlement with the SEC and Department of Justice in May 2014—from $32.41 per share to $13.72 per share.
The lawsuit contends that, given their awareness of Avon’s misconduct, the plan fiduciaries should have implemented a freeze on purchases of shares in the Avon stock fund or communicated the truth about Avon’s misrepresentations. To ensure they did not run afoul of securities law prohibiting insider trading, the suit says, plan fiduciaries could have worked to make the company disclose the truth at the same time.
The lawsuit asks for a declaration that plan fiduciaries violated their ERISA duties to plan participants and an order that the defendants in the lawsuit restore participants’ accounts to what they would have been if plan fiduciaries had honored their obligations.
The suit was filed on behalf of all participants in the Avon plan who held shares of Avon stock between July 31, 2006, and May 1, 2014.
The complaint in Poovathur v. Avon Products Inc. et. al. is here.
« Considerations for DB Investing in 2015