14 Mar

LuLaRoe Pyramid Scheme Lawsuit

And there is  another lawsuit against LuLaRoe. The  MLM  that sells leggings of questionable taste appears on the verge of collapse. A lawsuit filed in 2018 by Providence, a company that supplied LLR with goods first demanded $49 million. More recently, Providence says it is owed $63 million and it wants the court to seize $34 million in assets since owners Mark and DeAnne Stidham are a flight risk. And then the state of Washington sued LLR, alleging it is a pyramid scheme:

“LuLaRoe tricked consumers into buying into its pyramid scheme with deceptive claims of high profits and refunds for unsold merchandise,” Ferguson said in a news release. “Instead, many Washingtonians lost money and were left with piles of unsold merchandise and broken promises from LuLaRoe. It’s time to hold LuLaRoe accountable for its deception.”

The newest lawsuit was filed this month by plaintiffs Tabitha Sperring, Paislie Marchant, and Sally Poston. The lawsuit sums up the scam (coincidentally or not in language that sounds an awful lot like things I’ve written here):

Although putting in the effort, Plaintiffs, like other LuLaRoe consultants, failed because they were doomed from the start by the LuLaRoe plan that systematically rewarded recruiting consultants over retail sales of the product. This was a plan where LuLaRoe paid a significant portion of every dollar that Plaintiffs and other consultants paid for LuLaRoe products to others in the form of bonuses, regardless of the consultant’s actual retail sales. This was a plan where millions were paid to those few at the top (primarily Mark Stidham and Deanne Brady), at the expense of the many at the bottom. LuLaRoe was started by Mark Stidham and Deanne Brady (who essentially sit at the very top of the pyramid) in order to enrich themselves through a calculated endless chain scheme. Upon information and belief, Stidham and Brady have earned hundreds of millions of dollars in profit for themselves on the backs of women who were seeking a legitimate business opportunity where they could earn income while spending more time with their families.

Here is where it gets more interesting:

Income earned through the Leadership Bonus Plan significantly dwarfed retail profits for top consultants. At a Leadership Conference themed, “Be the Light” hosted at the Riverside Convention Center in California in January 2017, Defendant Brady asked Consultants to publicly state their last month’s total retail sales and bonus checks. Consultants, at Defendant Brady’s direction, announced the amounts of their monthly bonus checks, which ranged from $85,000 to $307,000. Compared to their monthly retail sales, which ranged from $12,000 to $25,000, it was clear that the primary opportunity for compensation was not through sale of LuLaRoe apparel, but bonuses earned through recruiting.

They’re laying out the case that people are really paid for recruiting, rather than being paid for selling the products. That’s a key element in defining something as a pyramid scheme

The lawsuit goes on to explain the typical MLM scam… get the downline to buy a whole bunch of inventory so the upline gets commissions, regardless of whether the downline will actually be able to sell that inventory. Inventory purchases are encouraged as a participation activity, rather than something that represents retail sales. LuLaRoe promotes a “buy more, sell more” concept, which is done to encourage inventory loading.

And then there are the false income claims.  Print materials distributed by LLR say:

  • MAKE A FULL-TIME INCOME DOING PART TIME WORK. BECOME A LULAROE
    INDEPENDENT BUSINESS OWNER
  • WANT TO EARN FULL-TIME INCOME FOR PART-TIME WORK? ASK ME HOW?

Where have we heard these types of claims before? Just about all MLMs, but specifically Mary Kay Cosmetics. They are notorious for pushing the “full-time pay for part-time work” lie in conjunction with the “make money while at home with your kids” nonsense.

You may have heard of Mary Kay math? It’s the little fantasy that Mary Kay reps concoct to make it look like you can develop a viable business retailing products. There is  LuLaRoe math too. Mark Stidham made claims at a recruiting event that you can do a party in 5 hours (including set-up, take down, and work ahead of time). 4 parties a week is 20 hours. You’ll sell about 100 pieces a week if you do the 4 parties every week. Take a couple of weeks off each year, and you’ve sold 5,000 pieces in a year. With an average profit of $12 to $15 per item, you’ve just made $60,000 to $75,000 a year working 20 hours a week.

No one tells you how you’re supposed to get that many parties to happen, though.

The lawsuit goes on and on. Read it and substitute Mary Kay for the company name and cosmetics for pieces of clothing. The scam is nearly identical

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