Washington AG sues LuLaRoe clothing seller as ‘pyramid scheme’

The company is accused of misrepresenting how much money can be made selling the patterned leggings.

By Thomas Clouse / The Spokesman-Review

The Washington Attorney General filed a lawsuit Friday alleging that clothing marketer LuLaRoe, and its business model, which uses “fashion consultants,” is actually a pyramid scheme used to defraud those persons it recruits to sell the clothing.

As part of the suit, AG Bob Ferguson asserts that the company misrepresents how much money sellers can make selling the popular patterned leggings and other clothing. The company charges prospective sellers between $2,000 to $9,000 as “onboarding” fees to sell the clothing on the promise that they could make as much as $10,000 to $500,000 a month for part time work.

“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.”

The Spokesman-Review reached out to five local “home office” sales representatives listed on the LuLaRoe website. However, none of them immediately responded to emailed requests for interviews.

LuLaRoe, which is based in California, sells leggings and other apparel. It uses individual retailers, which they call “independent fashion consultants,” to sell the clothing. The new consultants must be recruited and sponsored by existing retailers.

More than 3,500 Washington residents signed on to sell the clothing since January 2014. However, fewer than 2,000 of those consultants remain active, according to the state.

Ferguson explained that a direct-selling business becomes a pyramid scheme when its primary source of income comes from recruiting sellers rather than the retail sales to consumers. They often require steep start-up costs and require minimum purchases on a regular basis.

Between 2014 and 2017, LuLaRoe consultants received monthly bonuses based how much inventory they and their recruits purchased from the company. The more consultants they recruited, the higher the bonuses the company provided.

The business changed its pay structure in 2017 to provide bonuses solely on sales to customers, the state said. “In a LuLaRoe webinar, a LuLaRoe executive explained the change came about because of the ‘need to get away from being a pyramid scheme,’ ” the news release states.

If a judge rules that LuLaRoe violated the law, Ferguson will seek penalties of $2,000 per violation, as well as costs, fees and other relief. He will also seek to force LuLaRoe to pay restitution to the people who paid money to become part of the business.

“It’s time to hold LuLaRoe accountable for its deception,” Ferguson said in the release.

A call to the LaLuRoe corporate office in Corona, California, was not immediately returned on Friday.

Talk to us

More in Herald Business Journal

FILE - In this file photo dated Monday, March 11, 2019, rescuers work at the scene of an Ethiopian Airlines plane crash south of Addis Ababa, Ethiopia.  The number of deaths in major air crashes around the globe fell by more than half in 2019 according to a report released Wednesday Jan. 1, 2020, by the aviation consultancy To70, revealing the worst crash for the year was an Ethiopian Airlines Boeing 737 MAX on March 10 that lost 157 lives. (AP Photo/Mulugeta Ayene, FILE)
US board says Boeing Max likely hit a bird before 2019 crash

U.S. accident investigators disagree with Ethiopian authorities over the cause of a 2019 Boeing 737 Max crash.

Paddywack co-owner Shane Somerville with the 24-hour pet food pantry built by a local Girl Scout troop outside of her store on Tuesday, Dec. 20, 2022 in Mill Creek, Washington. (Olivia Vanni / The Herald)
An out-paw-ring of support: Mill Creek pantry feeds pets, day or night

With help from local Girl Scouts, the Mill Creek pet food store Paddywack is meeting the need for pet supplies in a pinch.

Kelly Cameron is the woodworker behind Clinton-based business Turnco Wood Goods. (David Welton)
Whidbey woodworkers turn local lumber into art

In the “Slab Room” at Madrona Supply Co., customers can find hunks of wood native to the south end of Whidbey Island.

Siblings Barbara Reed and Eric Minnig, who, co-own their parent’s old business Ken’s Camera along with their brother Bryan, stand outside the Evergreen Way location Thursday, Dec. 15, 2022, in Everett, Washington. After five decades in business, Ken’s will be closing its last two locations for good at the end of the year. (Ryan Berry / The Herald)
Print it or lose it: Ken’s Camera closes after decades caught on film

The local legend, processing film photos since 1971, will close its locations in Mount Vernon and Everett at the end of 2022.

Store owner Jay Behar, 50, left, and store manager Dan Boston, 60, right, work to help unload a truck of recliners at Behar's Furniture on Monday, Jan. 16, 2023. Behar's Furniture on Broadway in Everett is closing up shop after 60 years in business. The family-owned furniture store opened in 1963, when mid-century model styles were all the rage. Second-generation owner, Jay Behar says it's time to move on. (Annie Barker / The Herald)
Behar’s Furniture in Everett closing after 60 years

“It’s time to move on.” The small family-owned store opened in 1963 and grew to cover an entire city block.

Katy Woods, a Licensed Coach, Branch Manager, and experienced Banker at Coastal Community Bank.
Coastal Community Bank Offers Classes for Businesses

To support local business owners and their teams, Coastal offers complimentary Money… Continue reading

Innovative Salon Products online fulfillment employees, from left, Stephanie Wallem, Bethany Fulcher, Isela Ramirez and Gretchen House, work to get orders put together on Friday, Jan. 6, 2023, at the company’s facility in Monroe, Washington. The company began including pay, benefits and perks to its job listings over a year ago, well ahead of the new statewide mandate to include a pay range on job postings at companies with over 15 employees. (Ryan Berry / The Herald)
New state law requires employers to give pay range in job postings

Washington’s new pay transparency law aims to narrow wage gaps based on race or gender — though some companies may seek loopholes.

Nelson Petroleum on Thursday, Dec. 22, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
‘Egregious:’ Everett fuel company repeatedly broke water standards

Nelson Petroleum faces a lawsuit from an Everett Mall Way strip mall over discharges into a nearby wetland.

Mike Lane and son Dave Lane, right, in front of their family store Everett Vacuum with their popular sign and saying, “everything we sell sucks” on Thursday, April 7, 2022, in Everett, Washington. (Olivia Vanni / The Herald)
Suck it up — and shop it up — at Everett Vacuum

After 80 years on Broadway, the family-run store with the “Everything we sell sucks” sign moved to Hewitt Avenue.

Customers leave J. Matheson Gifts Wednesday, Feb. 16, 2022, in Everett, Washington. (Ryan Berry / The Herald)
Everett’s longtime J. Matheson gift store finds new life in Seattle

Miranda Matheson had her mother’s blessing when she opened a new J. Matheson Urban Gifts & Kitchens in Green Lake.

Carla Fisher and Lana Lasley take a photo together with Tommy Chong during 210 Cannabis Co’s grand opening Saturday, Dec. 10, 2022, in Arlington, Washington. Fisher and Lasley waited in line solely to get a photo with Chong. (Ryan Berry / The Herald)
Stillaguamish Tribe opens retail cannabis shop

More than 1,500 attended a grand opening on Dec. 10. The venture comes amid a boom in tribal cannabis stores.

Franco Montano works on putting together a wreath at his workshop on Monday, Dec. 5, 2022 in Monroe, Washington. (Olivia Vanni / The Herald)
Monroe man runs taco truck by day, makes 100 wreaths by night

Franco Montano, a former factory worker, started making the holiday wreaths in 2008. He has expanded into a thriving family business.