Attorney General Bob Ferguson announced today that LuLaRoe will pay $4.75 million to resolve Ferguson’s consumer protection lawsuit asserting that LuLaRoe, a California-based multi-level marketing business that sells leggings and other apparel to a network of independent retailers, was operating a pyramid scheme.

In January 2019, Ferguson filed a lawsuit against LuLaRoe and several of its executives, asserting that the defendants made unfair and deceptive misrepresentations regarding the profitability of being an independent retailer for the company. For example, one LuLaRoe executive claimed that “so many of our retailers are making amazing money doing this part time” and “a huge number of people” sell $15,000 to $20,000 each month. Later in the same call, she claimed LuLaRoe has “a bunch of people” that can sell up to $150,000 per month. Instead of profiting, many of the company’s independent retailers were left with debt and unsold merchandise they could not return without taking a loss.

Ferguson’s lawsuit asserted that LuLaRoe violated the Washington Antipyramid Promotional Scheme Act and the Consumer Protection Act. In addition to the company’s deceptive misrepresentations regarding profitability, Ferguson’s lawsuit challenged LuLaRoe’s unlawful bonus structure and unfair refund policy.

The resolution, filed in King County Superior Court, prohibits LuLaRoe from operating a pyramid scheme. Additionally, LuLaRoe must be more transparent with retailers to avoid future deception. For example, LuLaRoe must publish an income disclosure statement that accurately details retailer income potential.

Ferguson will provide $4 million to Washingtonians who were deceived by LuLaRoe’s business practices. The Attorney General’s Office estimates that approximately 3,000 Washingtonians will receive checks. Every Washington retailer who lost money under this pyramid structure will receive restitution. The remaining $750,000 will partially reimburse the Attorney General’s Office for the cost of investigating the conduct and bringing the lawsuit.

“LuLaRoe tricked Washingtonians into buying into its pyramid scheme with deceptive claims and false promises,” Ferguson said. “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.”

Existing LuLaRoe retailers recruit and sponsor new independent retailers who join their network to sell the company’s clothing.

lularoe, lularoe mlm, lularoe promotion — source: AG Ferguson Press Release

Since January 2014, more than 3,600 Washingtonians joined the network as retailers.

LuLaRoe required new retailers to purchase an “onboarding” package costing between $500 to $5,000, depending on the amount and type of inventory included. Retailers could not choose specific sizes or prints of the inventory they bought, but rather were limited in selecting only the style of clothing to purchase, receiving a random assortment of sizes and prints.

Misleading income claims
LuLaRoe made several misleading claims regarding the profitability of its business model to encourage more consumers to become retailers.

For example, LuLaRoe advertised that retailers could make “full-time income” for “part-time work.” At recruitment events and calls, LuLaRoe executives made representations regarding the income or profits earned by their top retailers, implying that such income was representative. The LuLaRoe executive who claimed “a huge number of people” sell $15,000 to $20,000 each month stressed to prospective recruits that LuLaRoe “is a crazy and incredible opportunity for you.”

The above is a press release from the Attorney General’s Office. The Auburn Examiner has not independently verified its contents and encourages our readers to personally verify any information they find may be overly biased or questionable. The publication of this press release does not indicate an endorsement of its content.