Experts say LuLaRoe gets $4.75 million slap on the wrist, as company eludes admission of any wrong doing
- Multi-level marketer
LuLaRoejust settled a major pyramid schemelawsuit.
- As part of its settlement with the state of Washington, LuLaRoe will have to shell out $4.75 million.
- But experts say that the settlement doesn't go far enough.
LuLaRoe's longstanding legal battle with the state of Washington has come to an end with a $4.75 million settlement. The office of Washington's attorney general Bob Ferguson filed suit against LuLaRoe on January 23, 2019, naming the controversial multi-level marketing company, founders Mark Stidham and DeAnne Stidham, and their son Jordan Brady in the suit.
The attorney general alleged that the business - which hawks colorful leggings and other garments through a network of independent retailers - was functioning as a pyramid scheme in the state of Washington. LuLaRoe's business model of requiring participants to purchase thousands of dollars of inventory directly from the company left many in debt.Read more: Inside the life of LuLaRoe's controversial founder, whose small dress business blew up into a leggings empire that's been accused of operating as a pyramid scheme
The Washington Anti-Pyramid Promotional Scheme Act passed the state legislature in 2006. The nearly identically-named Anti-Pyramid Promotional Scheme Act was introduced in Congress in 2018, although it didn't pass. Critics have argued that the national bill was crafted with support from the direct sales lobby, and its passage would narrowly define pyramid schemes in order to make prosecuting
'People who aren't guilty don't settle'
Many former consultants across the United States say the company lured them into financial ruin, by selling moldy or paper-thin garments, failing to pay refunds or handle inventory issues, and generally running a business that allowed early adopters to rake in thousands of dollar through recruitment while leaving latecomers flat. In the years since it was founded in 2012, LuLaRoe enriched its founding family - the Stidham-Brady clan- financing a lifestyle filled with expensive cars, luxury ranch getaways, and other conspicuous displays of wealth.When asked for comment, LuLaRoe directed Insider to its statement on the settlement. Read more: Inside the lawsuit between ex-best friends that is threatening LuLaRoe, a controversial legging company that was bringing in billions in sales
"Given the expenses LuLaRoe incurred in defending this lawsuit, it made sense for LuLaRoe to pay the settlement we agreed upon," CEO Mark Stidham said in the 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."
Read more: LuLaRoe's founders have been linked to 31 LLCs set up during the last 3 years - and a lawsuit alleges they're attempting to shield assets like a Gulfstream jet, a ranch in Wyoming, and a world-record-breaking supercar named RuthieIn many ways, the case was unprecedented. The state of Washington had never enforced the anti-pyramid scheme law, meaning that attorneys for the state didn't have case law to draw upon. Powerful multinational law firm DLA Piper - the former firm of Second Gentleman Doug Emhoff - represented LuLaRoe in the litigation.
Still, in regards to the attorney general's goal of providing financial restitution to those affected by LuLaRoe, the case is a clear success. LuLaRoe will have to shell out $4.75 million. Of that money, $4 million will go toward a group of around 3,000 Washingtonians "deceived by LuLaRoe's business practices," according to Ferguson's office. Washingtonians who worked as LuLaRoe consultants will have to take no action in order to access that money. The rest of the settlement "will partially reimburse the Attorney General's Office for the cost of investigating the conduct and bringing the lawsuit," according to a statement from Ferguson's office.
Many former LuLaRoe consultants have flocked online to criticize the multi-level marketing company, and the news of the settlement was met with much enthusiasm on Facebook groups and message boards. Washington-based former consultants expressed gratitude for the attorney general's efforts on the case, and excitement that they might receive some money back."I feel like people who aren't guilty don't settle," one former consultant told Insider.
'The lies and the loss'As the prevalence of MLMs in the US grows, so does anger towards them. The anti-MLM subreddit has accrued 686,000 members since 2011, all dedicated to stopping the companies "from draining your friends dry."
But FitzPatrick, whose books on
"What if they disclosed fully - since we were founded, here's how many people joined and here's how many people made a net profit?" he said. "Just one sentence. But they would never disclose that."FitzPatrick said that nowadays, many states have laws written with input from direct sales lobbyists, allowing multi-level marketing schemes to flourish. "They left alone the most egregious element, the reason there's all this MLM controversy right now," FitzPatrick said. "It's not over leggings that got wet. It's over loss. It's over lies. The lies and the loss are dependent on, based upon, driven by the proposition itself. And the proposition is in plain sight. There it is. You don't make money at this unless you recruit. And the people you recruit can't make money unless they recruit. You're recruiting somebody into a demonstrably worthless business."
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