Washington State Attorney General Bob Ferguson is suing LuLaRoe for being a pyramid scheme. The complaint filed on January 25 alleges that LLR misled consultants on income, sales, and paid large commissions for wholesale purchases. Additionally, the company refused to honor their buyback program leaving hundreds of consultants in debt.
The complaint says that LLR’s bonus structure and misrepresentation violated the Antipyramid Promotional Scheme Act and the state Consumer Protection Act. Ferguson named Mark Stidham, DeAnne Stidham, and Jordan Brady as defendants.
Ferguson alleges that LLR paid out huge bonuses to consultants that made wholesale purchases. The bonus structure incentivized consultants to recruit friends to sell the LLR. Onboarding packages to start selling LLR ranged from $2,000 to $9,000.00.
Consultants earned commission on their recruits wholesale purchases. If one of the consultant’s recruits signed up a friend, the consultant received a commission on the sales. The more people the consultant recruited or their team recruited the more money they made.
The bonus structure was paid out solely on wholesale purchases and not retail sales. LLR required consultants to make significant monthly purchases to continue their eligibility for bonuses. Additionally, LLR consistently told consultants to reinvest all sales profits into more products.
In sales calls, LLR released limited edition items that were highly sought after by consultants. However, consultants were not able to pick sizes or patterns of inventory. LLR created a wholesale buying frenzy as consultants made large purchases in hopes of obtaining the unicorn.
At sales conferences and calls, LLR consistently misled consultants about how much income they could generate. They told reps they could make fulltime income with parttime hours. LLR encouraged consultants to host at least four pop-up parties a month. At each pop-up, LLR instructed consultants to recruit three new hostesses.
During conferences, the Stidham’s brought up top earners on to the stage. They had the earners disclose how much money they were making in bonuses. The reps disclosed their bonus commissions ranging from $85,000 to $307,000 monthly. When the same reps disclosed their retail sales, the amounts were drastically smaller. The retails sales ranged from $12,000 to $25,000.00 a month.
By disclosing the bonus amounts to hungry consultants, LLR created a culture of massive onboarding of consultants over the three years. Each new wholesale purchase lined the pockets of the upline. The bigger the team, the more money the upline made.
On sales calls, LLR encouraged reps to brag about their income and share their success. By doing so, top earners consistently misled recruits about how much money they could make.
Additionally, the complaint alleges that LLR failed to keep their website updated about the number and locations of consultants selling LLR. Failing to provide accurate market data to potential recruits prohibited the recruits from understanding the saturation in their market. Thousands signed up not realizing the market was overly saturated and would make sales impossible.
As consultants became frustrated with their inability to sell products, many attempted to leave the company. LLR promised the consultants 90-100% buybacks on any wholesale purchases made. However, Ferguson says many consultants never received refunds despite returning their inventory.
In 2017, LLR changed their bonus structure and no longer paid out bonuses based on wholesale purchases. During a sales call, Jordan Brady admitted that the company needed to stop being a pyramid scheme. With the new bonus structure, consultants saw their commissions drastically cut.
Retail sales tanked in 2017 due to clothing ripping, tearing, and poorly constructed seams. As more women stopped buying the clothing, more and more retailers attempted to leave the company.
Fergusen says that LLR’s practices harmed thousands of families across the states. By 2017 there were more than 3,500 LLR consultants in the state. Due to the bonus structure, marketing and sales, and refund policies, the majority of the consultants in Washington lost money.
Fergusen is seeking damages of at least $2,000 for every violation LLR incurred in the state. With thousands of consultants, the fines imposed on LLR could exceed millions. The AG is also asking that LLR provide restitution to the consultants they ripped off.
The filing by the Attorney General comes at a time when LLR is facing a $48 million lawsuit filed by their largest clothing vendor. Also, there are at least 15 current class action lawsuits against LLR for deceptive marketing, refunds, defective products, and improper sales tax collection.
LLR is a sinking ship. When the company officially files for bankruptcy, remains to be seen.
*Katie Joy is a columnist and hosts Without A Crystal Ball on Patheos Non-Religious Channel. She writes articles on parenting, disability advocacy, debunking pseudoscience, atheism, and crimes against women and children.
She co-hosts the YouTube show, “The Smoking Nun,” with Kyle Curtis. The show airs weekly and tackles pseudoscience, current events, and crime stories.
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