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The Attorney General of Washington State has taken legal action against LuLaRoe, alleging that the multi-level marketing company is an illegal "pyramid scheme".
LuLaRoe CEO Mark Stidham and President DeAnne Stidham are among the defendants named in the lawsuit, which was filed Wednesday in King County Superior Court.
The lawsuit accused LuLaRoe of exploiting an "illegal pyramid", making misleading tax returns and encouraging his consultants to focus more on recruiting than selling clothes to customers, among other charges.
"The defendants market the MLM LuLaRoe as a transformational and autonomous opportunity to achieve dreams and achieve financial freedom while providing a flexible and part-time alternative to traditional employment," said the lawsuit. according to a copy of the 21-page complaint obtained by Business Insider.
"In reality, LuLaRoe's commercial model and compensation plan, as well as the corresponding marketing activities, dictated that at one time, the majority of Washington consultants were losing money. "
Read more: LuLaRoe is facing increasing debt, layoffs and an exodus of reputable salespeople, and sources say the legging empire, endowed with $ 2.3 billion, could implode.
LuLaRoe and the Stidhams did not immediately respond to requests for comment on the lawsuit.
Business Insider reported in December that the Washington attorney general's office was investigating LuLaRoe and helping to get refunds – some worth several thousand dollars – for former LuLaRoe salespeople residing in Washington.
The Washington Attorney General is asking a court to permanently ban LuLaRoe, Stidhams and their employees from pursuing certain business practices. The prosecution is also asking a court to impose fines on the company for the alleged offenses and to seek redress from those affected by the company's behavior.
"LuLaRoe misled consumers into believing that he was claiming to make high profits and repay unsold merchandise," Washington Attorney General Bob Ferguson said in a statement two hours after the article was published. . "Instead, many Washingtonians lost money and ended up with stacks of unsold products and broken promises from LuLaRoe, and it's time to hold LuLaRoe accountable for its deception."
According to the Ferguson office, there are fewer than 2,000 LuLaRoe consultants operating in Washington, while they were 3,500 at most. Most Washington consultants reported total profits of less than $ 10,000 from their LuLaRoe business, and nearly a third of the consultants reported losses, the office said.
Ferguson's complaint cites several cases in which LuLaRoe executives are accused of making claims regarding income and lifestyle, such as the promise of a full-time income for part-time work.
Read more:The founder of LuLaRoe said the company was "starting from scratch" in the face of the seller's exodus and a $ 63 million legal battle
In one example, DeAnne Stidham is accused of having told consultants: "I mean I could amaze you by saying that we have over 100 people making a lot of money, between 50,000 and $ 500,000 a month, and I'm not lying, "said the suit.
The complaint also alleged that Stidham had repeatedly asked the top consultants to publicly share their bonus checks at events organized by the company. A photo included in the suit shows the Stidham posing with a group of husband and wife consultants and holding a giant check worth $ 1.4 million.
Read more: LuLaRoe supplier launches new $ 34 million request for immediate seizure and says company is liquidating goods in silence
"Although the defendants sometimes provide waivers when they make these claims and other claims relating to income or their lifestyle, their attempts are insufficient," the lawsuit said.
Ferguson's complaint further alleged that the annual income disclosure statements published on LuLaRoe's website were misleading and that the company had not issued a statement last year.
The complaint also challenged LuLaRoe's minimum order requirements, stating that consultants were forced to buy large quantities of clothing that they could not sell within a reasonable period of time.
This practice, called inventory loading, is "unfair and misleading," the Ferguson office said in a press release.
In addition to this lawsuit, LuLaRoe is also facing a $ 63 million lawsuit from its leading supplier, Providence Industries, which says the garment company has not paid its bills for months. LuLaRoe denied the claims in the lawsuit.
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