BREAKING: Washington State Attorney General Sues Lularoe, Allege "Pyramid Scheme"

On Friday, 25-JAN-2019, the Washington attorney general filed a lawsuit against LulaRoe, the clothing marketer, for operating as a pyramid scheme that defrauded the "fashion consultants" it employs.

Without going into too much detail, LuLaRoe is best known for selling leggings (and other stuff) on a lottery system. Each consultant is expected to buy $2000 to $9000 worth of stuff upon signing up. Yet they will not know what they will receive.  Since 2014, over 3500 Washington residents signed up, but less than 2000 remain active today. Between 2014 and 2017, LuLaRoe consultants receive bonuses based on how much inventory they and their recruits have PURCHASED (not sold) from the company.  It is obvious that the more the consultants recruited (and each recruit bought THOUSANDS of dollars of stuff), the more bonuses were paid out. The compensation plan was changed in 2017 to be only based on sales of the consultant alone.

There are PLENTY of other problems with the company's practices. The leggings have to be unpacked to be show to potential customers (including for eBay), yet LuLaRoe have refused to provide refund if the package was opened. There were frequent charges of "low quality". Multiple designers have charged LulaRoe of stealing their designs and patterns without their permission. After multiple complaints, LLR seems to have moved to taking vector art and remixing them, but again, many seems to have been used without the proper license.

MLMSkeptic had penned a commentary "Is LuLaRoe eating its own tail?" in 2017, when LuLaRoe attempted to serve a "discovery" on a blog critic who goes by MommyGyver, claiming she had disclosed company secrets.

Commentary: Is LuLaRoe eating its own tail?

Recently, multiple news outlets reported several disturbing reports that LuLaRoe is not only rescinding money back policies, but also threatening to sue a blogger critical of its operations to obtain information that it claimed were "proprietary".  This has raised questions about why would a company with claimed 80000 reps would turn on its reps like this.

First, multiple TV stations reported that local reps are worried when LuLaRoe rescinded its no-fee 100% money back and free return shipping policy, which has only been in effect for a month. Instead, reps are to use the regular return channel, which only return 90% of price, but also have to pay shipping.

According to reps, the inventory you get from LuLaRoe is like hitting a lottery, as you cannot specify designs, merely quantity and size. Similar to collectible card games. Certain rare patterns sell quickly at inflated prices on eBay or such, while the rest languish in rep's stock, until the rep either liquidate them on eBay and give up, or try to go through the buyback process. There are rumors that up to 4000 cases of refunds are pending, and people have been waiting for months

And unlike other MLMs, LuLaRoe's startup costs are extremely high, as much as 5500 dollars to start, and if rep can't sell them, often the advice one gets from rep's upline is "order more!"  Some reps claimed you need about 15000 in inventory and markup of over 40% to earn a profit. And if you get a bunch of duds from the factory order (remember, it's random), you will have to arrange a trade with a different rep... if you can find someone who wanted your duds and trade you something they considered duds.

One blog that exposed such practices, and other complaints about LuLaRoe from disgruntled customers and reps was Christina Hinks, better known as MommyGyver online. And after publishing many such complaints, including documents shared online by such, Hinks has been served with a "discovery petition" from LuLaRoe demanding that she...

...disclose the identity and contact information of potential defendants who have damaged LLR and its goodwill by providing Respondent with LLR's confidential and proprietary business information, information about LLR and its merchandise, and false, derogatory information regarding LLR, much of which respondent has posted on her blog, www.mommygyver.com.

The interesting thing is much of the information had already been shared online via various social media platforms.

LuLaRoe so far has yet to comment about this potential SLAPP suit, though they did respond to the change in return policy (which is technically against their own company policy that changes in return policy must be announced for 30 days before it can go into effect). LuLaRoe's statement claimed the policy was always 90% buyback. The "improved" 100% buyback and free shipping was merely a temporary "waiver".