OLYMPIA, Wash. (KOMO) – Attorney General Bob Ferguson filed a lawsuit against multi-level marketing company LuLaRoe on Friday.
According to their website, the clothing store was founded in 2013 by husband and founder wife Mark and DeAnne Stidham. LuLaRoe offers a variety of styles, from dresses to skirts to jackets and tops. Their website claims "it brought $ 1 billion into the pockets of small business owners in 2017, making it one of the country's fastest growing apparel companies."
The lawsuit alleges that the business operated and participated in an illegal pyramid plan violates Washington's anti-pyramid incentive program. The law, created in 2006, prohibits pyramid schemes based on unfair and fraudulent sales tactics.
According to the lawsuit, LuLaRoe violated the law through the Leadership Bonus Plan of his Independent Fashion Consultant Program.
Any Advisor Signing For LuLaRoe pays an on-boarding fee that, according to the lawsuit, can range from $ 2,000 to $ 9,000. Until July 1
"LuLaRoe has encouraged existing consultants to recruit and sponsor new consultants and to encourage them and their recruits to purchase large inventories by basing their bonus structure on the dollar amount of wholesale paid orders, rather than on flawless end-user retailing." it says in the lawsuit.
Revenues significantly increased by the Leadership Bonus Plan reduced retail profits for top consultants, according to the lawsuit. According to the Attorney General, consultants received monthly bonuses from 2014 through mid-2017, depending on how much inventory they and their recruits had purchased. The more consultants they recruited and bought inventory, the higher their bonus checks. Top consultants said they received monthly bonus checks that were seven to twelve times higher than their sales. This structure led the consultants to recruit more retailers to make purchases, rather than sell clothes to consumers for personal use.
During a LuLaRoe conference, top advisers claimed to raise an additional $ 85,000 to $ 307,000 in bonus checks per month. Their typical retail sales were between $ 12,000 and $ 25,000 per month. "It was clear that the main opportunity for the compensation was not the sale of LuLaRoe clothing, but the recruitment bonuses," the lawsuit says.
In July 2017, LuLaRoe revised its Leadership Bonus Plan to compensate for actual retail sales rather than inventory purchases. After the transition, "consultants who participate in the Leadership Bonus Plan were no longer rewarded primarily by recruiting, instead, counselors did not earn money on LuLaRoe until they or their recruits actually sold goods to consumers, in other words, LuLaRoe moved a compensation structure that primarily rewarded consultants on the basis of recruiting for a compensation structure based on credible retail sales to consumers. "
The lawsuit also alleges that LuLaRoe is using unfair and fraudulent practices to enforce this Loading stock of stocks. "These practices include educating the advisors that key to success is maintaining a significant inventory, and the consultants must not select the pattern or size of the garments included in inventory purchases; minimum monthly inventory purchase requirements to be" active " or to qualify for the Leadership Bonus Plan; and to market Limited Edition "Unicorn" Pieces to create a "frenzy" of inventory orders. "
Ferguson claims that LuLaRo's profitability claims and cofinance procedures are unfair and fraudulent, which violates the State Consumer Protection Act AG-office.
The repurchase policy of LuLaRoe was restructured twice in a short time. "In April 2017, LuLaRoe increased its reimbursement policy to 100 percent plus shipping and waived the requirement to buy clothing within a specific timeframe, the company said the new policy had" no expiration date. "Five months later, the company revoked the 100 -coupled refund policy without notice and returned to the 90 percent rule. "
According to the AG's office, many consultants did not receive the promised reimbursement of 90 or 100 percent, and some received no refund at all.
"A woman from Washington returned her unsold clothes under the 100 percent policy, including clothing purchased more than a year earlier, and while the ship was on its way to LuLaRoe, the company returned back to his previous repurchase policy She wrote: "My boxes are in a UPS truck somewhere in the western US. I can not bring her back to repackage the items. If you do not follow the instructions, KEEP the garments and donate them. "$ 16,740 in the inventory of a lorry on its way to its warehouse."
According to the lawsuit, LuLaRoe's misrepresentation and failure to comply with the Refund Policy is a violation of the Consumer Protection Act
KOMO News React to LuLaRoe for comment, but no longer heard by publication.
Consumers who have had difficulty returning their unsold inventory to LuLaRoe for reimbursement or have had other issues with the company may find themselves to the Attorney General's Consumer Resource Center at 1-800-551-4636 or complain online.