Dive Brief:
- In a hit to the multilevel marking company, the Washington State Office of the Attorney General last week stated that LuLaRoe will pay $4.75 million to settle a lawsuit that asserted that the company was operating a pyramid scheme, according to a press release issued by the government office.
- The settlement, according to court documents filed in the State of Washington King County Superior Court, doesn't constitute "evidence or an admission by any party regarding the existence or non-existence of any issue, fact or violation of any law alleged by Washington." In a separate press release, LuluRoe said it "denied, and continue to deny, any wrongdoing, and the settlement releases any and all claims the State of Washington may have had" against the company.
- The resolution prohibits LuLaRoe from operating a pyramid scheme in the state of Washington and says that the company "must be more transparent with retailers to avoid future deception," per the government office press release.
Dive Insight:
The Federal Trade Commission lists warning signs of identifying a pyramid scheme, including that "promoters emphasize recruiting new distributors" for its sales network as the "real way to make money."
In January 2019, the State of Washington filed a lawsuit against the multilevel marketing company, asserting that LuLaRoe violated the Washington Antipyramid Promotional Scheme Act and the Washington Consumer Protection Act. Attorney General Bob Ferguson said that the apparel company made misrepresentations regarding the profitability of being an independent retailer.
In its original filing, the state of Washington stated that, until July 2017, LuLaRoe's leadership bonus plan gave its consultants a "right to receive compensation entirely based on the recruitment of other persons as participants."
The settlement was reached after over 40 depositions had been taken and the state of Washington obtained over 175,000 pages of documents from the company.
"LulaRoe tricked Washingtonians into buying into its pyramid scheme with deceptive claims and false promises," Ferguson said in a recent statement about the case. "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."
The company denies any wrongdoing. "Given the expenses LuLaRoe incurred in defending this lawsuit, it made sense for LuLaRoe to pay the settlement we agreed upon," LuLaRoe CEO Mark Stidham said in a statement. "Even though we believed we would win the case eventually —whether at trial or on a subsequent appeal – the expense would be enormous and the amount of time senior management would have had to devote to the litigation during the trial would have been a distraction from our business."
Around $4 million of the settlement will go to those in Washington who "were deceived by LuLaRoe's business practices," which the Attorney General's Office estimates to be around 3,000 people. The remaining $750,000 will partially reimburse the government office for the cost of the investigation.
LuLaRoe was founded in 2013 by husband and wife team Mark and DeAnne Stidham. The company is based in Corona, California, and utilizes independent retailers who act as consultants to sell products.
Filed Under: Financial News
