Two years ago the Washington State AG filed a lawsuit against LuLaRoe.
In the lawsuit the AG’s Office alleged LuLaRoe was an “unlawful pyramid scheme”.
Rather than prove it’s not a pyramid scheme, LuLaRoe has settled the lawsuit for $4.75 million dollars.
At the heart of the AG’s Office’s lawsuit is inventory loading and LuLaRoe distributors earning
compensation entirely based on the recruitment of other persons as participants in the LuLaRoe MLM.
As per LuLaRoe’s settlement, the company is prohibited from running a pyramid scheme.
Additionally, LuLaRoe must be more transparent with retailers to avoid future deception.
Specific settlement terms will see LuLaRoe required to
- publish an Income Disclosure Statement
- “calculate bonuses based on retail sales, not on the amount of merchandise purchased by independent retailers”
- “conduct random and targeted audits to determine whether sales are to genuine consumers”
- allow new distributors to “return all inventory for a full refund, including shipping costs” (45 day cooldown)
- return purchased inventory to distributors if it’s not eligible for a refund
- prohibit certain types of deductions from refund requests (presumably said deductions were found to be dodgy) and
- warn distributors prior to being shipped seasonal inventory or inventory that doesn’t qualify for a return/refund.
Out of the $4.75 million LuLaRoe will pay, $4 million will be returned to ‘Washingtonians who were deceived by LuLaRoe’s business practices.’
The Attorney General’s Office estimates that approximately 3,000 Washingtonians will receive checks.
Every Washington retailer who lost money under LuLaRoe’s pyramid structure will receive restitution.
The remaining $750,000 will go towards the AG’s Office’s legal costs.
“LuLaRoe tricked Washingtonians into buying into its pyramid scheme with deceptive claims and false promises,” Ferguson said.
“As a result, thousands lost money and two individuals made millions from their scheme. Washingtonians deserve fairness and honesty — and accountability for those who don’t play by the rules.”
BehindMLM reviewed LuLaRoe in June 2018. Our main issue with LuLaRoe’s business model was it operating as a leggings lottery.
I felt this was both anti-consumer and worked against distributors.
Based on the implied lack of retail sales in the AG’s Office’s lawsuit, I imagine the lottery was a major contributing factor to LuLaRoe operating as a pyramid scheme.
Seeing as LuLaRoe uses the same compensation plan across the US, it appears the company is wide-open for an FTC investigation.
Whether the federal regulator takes any action though remains to be seen.