- The Washington state attorney general alleged in a new lawsuit that LuLaRoe is an illegal “pyramid scheme.”
- The suit, filed Wednesday, accused LuLaRoe of operating an “illegal pyramid,” making misleading income claims, and encouraging its consultants to focus more on recruitment than selling clothes to customers.
- “LuLaRoe tricked consumers into buying into its pyramid scheme with deceptive claims of high profits and refunds for unsold merchandise,” Washington Attorney General Bob Ferguson said in a statement.
- Business Insider reported in December that the Washington attorney general’s office was investigating LuLaRoe.
The Washington state attorney general has filed a lawsuit against LuLaRoe alleging that the multilevel marketing company is an illegal “pyramid scheme.”
LuLaRoe CEO Mark Stidham and president DeAnne Stidham are among the defendants named in the suit, which was filed in King County Superior Court on Wednesday.
The suit accused LuLaRoe of operating an “illegal pyramid,” making misleading income claims, and encouraging its consultants to focus more on recruitment than selling clothes to customers, among other charges.
“Defendants market the LuLaRoe MLM as a transformational, empowering opportunity to achieve dreams and achieve financial freedom while providing a flexible and part-time alternative to traditional employment,” the suit said, according to a copy of the 21-page complaint obtained by Business Insider.
“In reality, LuLaRoe’s pyramid scheme business model and compensation plan, and its corresponding marketing activities dictated that during any particular time, a majority of Washington Consultants lost money.”
LuLaRoe and the Stidhams did not immediately respond to requests for comment on the lawsuit.
Business Insider reported in December that the Washington attorney general’s office was investigating LuLaRoe and was helping to secure refunds – some worth thousands of dollars – for former LuLaRoe sellers residing in Washington.
The Washington attorney general is demanding that a court permanently prohibit LuLaRoe, the Stidhams, and their employees from continuing certain business practices. The suit is also asking that a court assess fines against the company for violations of which it is accused and seek restitution for people impacted by the company’s conduct.
“LuLaRoe tricked consumers into buying into its pyramid scheme with deceptive claims of high profits and refunds for unsold merchandise,” Washington Attorney General Bob Ferguson said in a statement issued two hours after this story’s publication. “Instead, many Washingtonians lost money and were left with piles of unsold merchandise and broken promises from LuLaRoe. It’s time to hold LuLaRoe accountable for its deception.”
There are fewer than 2,000 active LuLaRoe consultants in Washington, down from a peak of 3,500, according to Ferguson’s office. Most Washington consultants reported less than $US10,000 in total profits from their LuLaRoe business, and nearly one-third of consultants reported losses, the office said.
Ferguson’s complaint cites several instances in which LuLaRoe executives are accused of making claims about income and lifestyle, such as promising full-time income for part-time work.
In one such example, DeAnne Stidham is accused of telling consultants, “I mean I could blow your, your mind away by telling you that we have over 100 people that make a lot of money, like between $US50,000 to $US500,000 a month, and I’m not lying,” the suit said.
The complaint also alleged that Stidham on several occasions asked top consultants to publicly share their bonus checks at company events. A photo included in the suit shows the Stidhams posing with a husband-and-wife consultant team and holding a giant check worth $US1.4 million.
“While Defendants sometimes provide disclaimers when making these and other income or lifestyle claims, their attempts are inadequate,” the suit said.
Ferguson’s complaint further alleged that annual income-disclosure statements published to LuLaRoe’s website are misleading and the company failed to post a disclosure statement last year.
The complaint also attacked LuLaRoe’s minimum-ordering requirement, saying it forced consultants to buy large amounts of clothing that they could not sell within a reasonable time frame.
This practice, known as inventory loading, is “unfair and deceptive,” Ferguson’s office said in a press release.
In addition to this lawsuit, LuLaRoe is also facing a $US63 million lawsuit from its chief supplier, Providence Industries, which alleges the clothing company has failed to pay its bills for months. LuLaRoe has denied the claims in the lawsuit.
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