Bevinal v. Avon Products Inc., et al 1:19-cv-01420-CM — On February 14, 2019, investors sued Avon Products, Inc. (“Avon” or the “Company”) in United States District Court, Southern District of New York. Plaintiffs in the AVP class action allege that they acquired Avon stock at artificially inflated prices between August 2, 2016 and August 2, 2017 (the “Class Period”). They are now seeking compensation for financial losses incurred upon public revelation of the Company’s alleged misconduct during that time. For more information on the AVP Lawsuit, please contact us today!
Summary of the Allegations
Avon (NYSE: AVP) makes and markets beauty products and related items, which are sold directly to its representatives. The Company’s representatives or associates then sell them to customers around the world.
According to its website, Avon boasts a ”network of millions of beauty entrepreneurs across the world.” These include part-time “beauty advisors,” who supplement their incomes by selling Avon products to people they know, and “full-time beauty entrepreneurs” who derive all of their income from selling the Company’s goods. In either case, they are classified as independent contractors rather than employees.
The Company divides its global operations by geographic region, namely: Europe, the Middle East and Africa, South Latin America, North Latin America, and Asia Pacific. As of 2016, the Company had sales operations in nearly 60 countries and territories.
According to the February 14 complaint, Brazil is the Company’s single largest market based on revenue and the number of sales representatives.
As also noted in the complaint, the Company also had more than 440 million shares outstanding as of November 2, 2018.
Summary of Facts
Avon and three of its three of its current and/or former officers and/or directors (the “Individual Defendants”) now stand accused of deceiving investors by lying and withholding critical information about the Company’s business practices during the Class Period.
Specifically, they are accused of omitting truthful information about certain accounting practices and methods for recruiting representatives in Brazil from SEC filings and related material. By knowingly or recklessly doing soy, they allegedly caused Avon stock to trade at artificially inflated prices during the time in question.
The truth came when the Company issued a press release announcing its second quarter 2017 financial results and held related conference call on August 3, 2017. During the call, one of the Individual Defendants admitted that, contrary to its prior statements, “the remedial actions in Brazil [i.e., stricter credit terms applied to recruiting new representatives] were negatively impacting active representatives and revenue” there.
A closer look…
As alleged in the February 14 complaint, the Company and/or Individual Defendants repeatedly made false and misleading public statements during the Class Period.
For instance, in a press release and related conference call held at the outset of the Class Period, the Company reported “an increase in new representatives in Brazil,” and attributed the increase to, “strong and consistent recruiting programs and onboarding of new representatives.” However, the Company did not disclose that in reality, it had “significantly loosened its credit terms in Brazil to recruit new representatives.”
Then, on a form filed with the SEC on November 3, 2016, Avon blamed an increase in bad debt to “the macroeconomic environment in Brazil,” rather than the changes it made to credit terms in order to recruit representatives and “boost revenue” there.
Finally, on a February 16, 2017, conference call held to discuss the Company’s fourth quarter 2016 results, one of the Individual Defendants acknowledged the true cause of the bad debt, and said planned corrective actions could have an adverse affect on “New representative growth.
Although Avon’s stock price fell following the revelation, the Company allegedly made positive and therefore misleading, statements that “the Brazil bad debt had been fully accounted for in the fourth quarter” to halt the losses.
Impact of the Alleged Fraud on Avon’s Stock Price and Market Capitalization
|Closing stock price prior to disclosures:
|Closing stock price the trading day after disclosures:
|One day stock price decrease (percentage) as a result of disclosures:
The following chart illustrates the stock price during the class period:
Actions You May Take
If you have purchased shares during the Class Period, you may join the class action as a lead plaintiff, remain a passive class member, or opt out of this litigation and pursue individual claims that may not be available to the class as a whole.
NOTE: The deadline to file for lead plaintiff in this class action is April 15, 2019. You must file an application to be appointed lead plaintiff prior to this deadline in order to be considered by the Court. Typically, the plaintiff or plaintiffs with the largest losses are appointed lead plaintiff.
In order to identify your potential exposure to the alleged fraud during the time in question, you may wish to perform an analysis of your transactions in Avon common stock using court approved loss calculation methods.
Recently Filed Cases
Listed below are recently filed securities class action cases being monitored by us, along with the class period and the deadline to file a motion to be appointed as the Lead Plaintiff in the action. Please contact us if you would like an LK report for any of these cases:
Levi & Korsinsky is a leading securities litigation firm with a hard-earned reputation for protecting investors’ rights and recovering losses arising from fraud, mismanagement and corporate abuse. With thirty attorneys and offices in New York, Connecticut, California and Washington D.C., the firm is able to litigate cases in various jurisdictions in the U.S., England, and in other international jurisdictions.
Levi & Korsinsky provides portfolio monitoring services for high-net worth investors and institutional clients. Our firm also assists investors in evaluating whether to opt-out of large securities class actions to pursue individual claims.