LuLaRoe
February 2, 2021
Washington Attorney General Bob Ferguson said LuLaRoe will pay 4.75 million dollars to resolve a consumer protection lawsuit that accused the apparel seller of operating a pyramid scheme.
The resolution, filed in King County Superior Court, bars LuLaRoe from operating a pyramid scheme and requires clearer disclosures to retailers. The company must publish an income disclosure that accurately describes what retailers may earn, base bonuses on retail sales rather than on merchandise bought by independent retailers, and audit whether sales are to real consumers. New retailers must be allowed to return all inventory for a full refund, including shipping, within 45 days of joining. Seasonal or nonreturnable inventory must be flagged before purchase.
Ferguson said 4 million dollars will go to Washington retailers who lost money, with checks expected for about 3,000 people. The other 750,000 dollars will partly cover the cost of the investigation and the case. The office said every Washington retailer who lost money under the challenged structure will receive restitution.
The lawsuit was filed in January 2019 against LuLaRoe and several executives. It alleged unfair and deceptive claims about how profitable a retailer business would be, an unlawful bonus structure, and an unfair refund policy. Ferguson said the conduct violated the Washington Consumer Protection Act and the state Antipyramid Promotional Scheme Act. Since January 2014, more than 3,600 Washington residents had joined as retailers. Startup packages ran from 500 dollars to 5,000 dollars, and buyers could pick a clothing style but not specific sizes or prints.
The state said income claims, including suggestions of full-time pay for part-time work and very high monthly sales, were not representative. Posted income disclosures were described as incomplete, outdated, or focused on recruitment bonuses in a way that hid overall losses. The office said two retailers with large downlines made more than 5 million dollars in profit combined from 2016 to 2019, while more than a third of retailers reported losses. A promised 90 percent refund on certain unsold inventory was, the state said, so unpredictable that retailers called the math LuLaMath, and some waited months or received nothing.