Fraud Analysis Paper

/in /by

  1. describe and analyze how the fraud was
    executed;
  2. identify and briefly discuss the role of the
    parties that were involved as perpetrators, accomplices, victims,
    tipsters, observers, and so forth (preferably in a chart or illustration)
    [include Jeffry Picower];
  3. assess the motives (or possible motives, if not
    reported) of each perpetrator;
  4. identify controls that might have deterred or
    prevented the fraud from occurring;
  5. discuss any involvement of the SEC;
  6. document how the fraud was discovered and
    investigated, including what should have been identified as red flags;
  7. discuss the resolution of this case; and
  8. cite and reference any articles, other texts,
    journals, websites, or so forth that you used as a source for the facts in
    your paper. NOTE: Avoid Wikipedia, because it is not recognized as a
    credible, authoritative source.

The SEC versus Avon Products, Inc. case was a result of the
company violating the Foreign Corrupt Practices Act (FCPA) by failing to have
proper internal control in place that would have prevented and detected the 8
million dollar payments and gifts that were made to the Chinese government by
way of one of Avon Products’ subsidiaries located in China; known as the Guangzhou
Office. The investigation was conducted by Pual Sharratt and Roger Paszamant
and supervised by David Frohlich; however, it was because of a whistleblower
within the company that it was brought to the attention of upper level
management. The investigation revealed that Avon violated Section 13(b) (2) (A)
and 13 (b) (2) (B) of the Securities and Exchange Act of 1934. It was concluded
with a $135 million dollar settlement paid to the Southern District of New
York.

According to the press release from the SEC, Avon’s
subsidiary allegedly made cash, travel, gift, and entertainment payments to
Chinese government officials in order to obtain a direct selling license so
that Chinese officials could oversee the direct selling regulations. This took
place approximately from 2004 to 2008; however due to their accounting
inaccuracies, these blatant operations may have been transpiring longer. In
March 2006, these favours resulted in Avon becoming the first company to
receive the first direct selling business license in China. In addition to the
bribery committed, the company failed to properly account for the details and
purpose of the payments being made to the Chinese government by erroneously
recording the transactions with no information at all or as employee business
expenses.

For this act to transpire, according to the fraud triangle,
there must have been a perceived pressure, a perceived opportunity and then rationalization
to concede their deeds. There were a eight individuals; two senior executive
employees of the Guangzhou office known as Avon Products (China), three senior executive
employees who were from America, two executive attorneys, and one of their
internal auditors. China recently lifted their outlawed direct selling laws when
they joined the World Trade Organisation which was an exceedingly important opportunity
for any international company who needed to export out of China, this type of
pressure to obtain a direct selling license out of China may have been the
pressure that commenced the fraud. In providing over eight million dollars of
gifts in cash, meals, entertainment, designer bags snd even non business travel
which were maliciously

Since Avon maintained and issued publicly traded securities
, they had to abide by Section 12(b) of the Securities Exchange Act of 1934 (15
U.S.C. 78) ehich required them to file periodic reports with the SEC

Avon has since been conduction internal control audits and
had to report their compliance efforts for an eighteen-month period.  They also, were permanently enjoined from
violating the provisions of the federal securities laws.

Works Cited

SEC Press Release “SEC Charges
Avon With FCPA Violation”. (2014, December 17). Retrieved July 17, 2015, from
http://www.sec.gov/news/pressrelease/2014-285.html

SEC Litigation Complaint. (2014,
December 17). Retrieved July 17, 2015, http://www.sec.gov/litigation/complaints/2014/comp-pr2014-285.pdf