The original complaint charges Avon and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Avon engages in the manufacture and marketing of beauty and related products primarily in North America, Latin America, Europe, and Asia Pacific.
The complaint alleges that, throughout the Class Period, defendants issued numerous positive statements about the Company’s performance and future prospects. As alleged in the Complaint, these statements were materially false and misleading because defendants failed to disclose and/or misrepresented the following adverse facts, which were known, or recklessly disregarded by them, at all relevant times: (i) that the Company was experiencing increasing resistance to its expansion efforts in China because local businesses were dissatisfied with the Company’s plans to direct sell in that market; (ii) that the Company’s revenue growth in its Central and Eastern Europe markets was dramatically slowing from internally forecasted levels such that the Company would be unable to reach its stated earnings projections; (iii) that the Company’s expansion efforts in Russian were being delayed due to a variety of adverse factors; and (iv) that as a result of the foregoing, defendants lacked a reasonable basis for their earnings projections and positive statements about the Company.
The complaint further alleges that on or around July 19, 2005, before the start of trading, Avon issued a press release announcing that its earnings for the second quarter of 2005 would be below expectations because of two factors: (i) “an unexpected temporary decline in China as Beauty Boutique owners reacted with concern to the imminent resumption of direct selling in that country;” and (ii) “lower-than- anticipated revenue growth in Central and Eastern Europe resulting from underperformance of several key marketing offers as well as delayed expansion into new geographies within Russia.”
Upon this news, shares of Avon common stock closed at $31.30 per share, a decline of $5.30 per share, or over 14%, from the previous trading day’s close, on unusually heavy trading volume.
According to the Company’s FORM 10-Q for the quarterly period ended September 30, 2006, in August 2005, a consolidated amended class action complaint for alleged violations of the federal securities laws was filed in the consolidated action in December 2005 in the United States District Court for the Southern District of New York (Master File Number 05-CV-06803) under the caption In re Avon Products, Inc. Securities Litigation naming Avon, an officer and two officer/directors. The consolidated action, brought on behalf of purchasers of the Company’s common stock between February 3, 2004 and September 20, 2005, seeks damages for alleged false and misleading statements “concerning Avon’s operations and performance in China, the United States . . . and Mexico.” The consolidated amended complaint also asserts that during the class period certain officers and directors sold shares of the Company’s common stock. In February 2006, the Company filed a motion to dismiss the consolidated amended class action complaint, asserting, among other things, that it failed to state a claim upon which relief may be granted, and the plaintiffs have opposed that motion.
On February 11, 2009, a Notice and Order Regarding Dismissal of the Action was filed with the court. The document also states that if any Avon shareholder wishes to intervene in this action to seek to pursue these claims, they must contact Plaintiffs counsel. On March 16, 2009, a Notice and Order Regarding Dismissal of Action was filed with the court. On March 18, 2009, the Defendants' motion to dismiss was granted by the judge.