Washington State Sues LuLaRoe for Operating Pyramid Scheme

Washington State Sues LuLaRoe for Operating Pyramid Scheme January 26, 2019
LuLaRoe Facebook

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.

When consultants failed to succeed, LLR blamed consultants for not working the program. They were told they weren’t doing enough work, finding enough recruits, or having enough parties.

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.

Communicate with Katie on Facebook, Twitter, Instagram, and Pinterest.

Buy Katie Joy a cup of Coffee. 

Buy Me a Coffee at ko-fi.com

Individuals wishing to help Katie with her expenses can become patrons. Patrons gain exclusive access to stories, new projects, and future books.

 

 

"That's my bet. It's known that both of Jill's pregnancies have ended in emergency C-sections, ..."

Derrick Dillard Says He Has Sex ..."
"They're in Florida. Decades ago, a third-degree murder conviction was overturned because FL law (as ..."

Parents of 4-Year-Old Boy that Refused ..."
"Reduces aggression, huh? Maybe this chick should've given some to her psycho baby daddy, instead ..."

Parents Who Denied Cancer Treatment for ..."
"I confess, I am the guardian of the passwords, and maintain a master list in ..."

Derrick Dillard Says He Has Sex ..."

Browse Our Archives

Follow Us!


TRENDING AT PATHEOS Nonreligious
What Are Your Thoughts?leave a comment
  • Chris Hogue

    Ummm… our society is a pyramid scheme.

  • Jim Jones

    Trump’s businesses are.

  • Knitting Cat Lady

    All businesses are.

  • rubaxter

    And, the vulture capitalists will walk away from it all after paying themselves bonuses for successfully avoiding any personal jail time …, er …, for successfully rolling up the company and paying the creditors a pittance.

  • (((J_Enigma32)))

    Ummm . . . no it’s not.

    Society, the government specifically, provides a service. Several of them, in fact, from military to police to sewage and water to education. That’s how you know it’s not a pyramid scheme; pyramid schemes do not provide a good or service. If you’re going to pretend you understand economics and finance rather than just regurgitate libertarian talking points, at least do some basic research first. Accuse it of being a MLM. MLMs at least provide products and services, unlike the traditional pyramid scheme. You’d still be incredibly wrong, since society is far more complex than your traditional MLM, but not totally and irredeemably so.

  • Chris Hogue

    Government education is culturally biased brainwashing which you have obviously accepted. Good luck to you with your lief.

  • (((J_Enigma32)))

    Good luck to you with your lief.

    Ah, I see now. Quiet the poe you are.

    10/10, would troll again.

  • Banrion

    Nope. Not even a little bit. I have not had to pay my employer one red cent in the 15 years I’ve been working for them.

  • Chris Hogue

    Not all payments are made in the form of cash.

  • Banrion

    What do you presume I have paid my employer over the last 15 years?

  • Chris Hogue

    I don’t make presumptions without particulars.

  • I haven’t paid Patheos anything to work. They pay me 😉

  • Banrion

    Oh but you did. You made the presumption that just because I have not paid my employer in cash that I have “paid” in some other manner that would make my corporate employment equally as predatory and abusive as the average MLM “job.” So please tell me what you think that is exactly.

  • Banrion

    Exactly. They pay me for my time. They pay me for my TRAINING, not just on the job training but any professional development I choose to pursue. They pay me to support my community through volunteering.

    All of the above are things that the average MLM distributor is paying cash for out of their meager commissions.

  • Chris Hogue

    Sorry, but you presumed that I presumed. This is not the same thing. All I said is that not all payments are made in lieu of cash. I do presume that as a corporate employee, you have most likely exchanged integrity for cash.

  • Banrion

    Then explain how you think all businesses are pyramid schemes. You’re here acting like your comment isn’t part of an ongoing conversation.

  • Chris Hogue

    Wow, you love putting words in other people’s mouths. I said our society, not all businesses, is a pyramid scheme. By the way, that is a sad thing for a message board arbitrator to delete, as it if were offensive. Maybe, it offended their false sense of reality. Good luck with being a corporate shill, because this is an ongoing conversation that is leading nowhere.

  • Banrion

    The comment which I responded to is “All businesses are.” You have said NOTHING about society in the many comments I have asked you for clarification. In fact, not once have you responded to a direct question with an actual answer. You love to throw hot takes with no elaboration and then accuse people of putting words in your mouth when they respond to your vague statements.