IN MONEY LuLaRoe accused of scam
Lawsuit claims company ran a pyramid scheme.
LuLaRoe, a company that promised its sellers the chance to become entrepreneurs by selling clothing directly to their social networks, was running a “pyramid scheme” that burdened consultants with debt and items they couldn’t sell, according to a lawsuit filed in Washington State.
Washington State Attorney General Bob Ferguson, filing suit in King County Superior Court, said in a statement that “LuLaRoe tricked consumers into buying into its pyramid scheme with deceptive claims of high profits and refunds for unsold merchandise, Instead, many Washingtonians lost money and were left with piles of unsold merchandise and broken promises ... It’s time to hold LuLaRoe accountable for its deception.”
LuLaRoe could not be immediately reached for comment.
The company, whose brightly patterned tops and leggings have been frequently offered on Facebook and other social media channels, is a direct-selling business in the vein of Avon and Amway. It offered stay-at-home mothers or others looking to make some extra income the chance to be consultants after paying an “onboarding” fee that could be as much as $9,000 according to the Washington State Attorney General.
But sellers have accused the company of being more interested in them wooing new consultants, who would have to pay those same initial fees, than in supporting their efforts to sell merchandise.
For instance, after their first pur- chase, sellers were no longer given a choice of which sizes or even designs they sold, the Washington State Attorney General said, with the company selling consultants a 33 piece pod with pre-selected items instead.
Before July 2017, LuLaRoe consultants received bonuses based not only on how much they sold, but also the merchandise sold by sellers they’d brought into the company. That bonus system violated Washington’s Antipyramid Promotional Scheme law, Ferguson’s complaint claims.
LuLaRoe has long been controversial. In 2017, it faced two lawsuits including a complaint by three California women claiming that LuLaRoe encouraged its sellers to borrow cash and even sell breast milk to purchase clothing that they ultimately couldn’t get customers to buy. Both suits also accused the business of unfair business practices and false advertising.
That year, LuLaRoe got rid of its guarantee to buy back all merchandise that went unsold, leaving consultants on the hook for thousands of dollars in piled up inventory. Amid an outcry by its sellers, LuLaRoe reversed that decision but continued to impose rigid rules around the return of products.
In the past five years, LuLaRoe had assembled a team of over 3,500 sellers in Washington alone, according to the state’s attorney general, but there are fewer than 2,000 still selling today.
The Washington state lawsuit wants LuLaRoe to pay the top penalty of $2,000 per violation and also is demanding that the company pay back customers.