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Saturday, August 24, 2019

Washington attorney general: Business created illegal 'pyramid scheme' bonus structure

State AG

By Marian Johns | Feb 4, 2019


OLYMPIA, Wash. — A California-based multi-level marketing business and some of its executives face a lawsuit from the Washington Attorney General's Office over the company's "pyramid scheme" bonuses for consumers who become consultants and false claims of high profits relating to its business model.


According to the Attorney General's Office, LuLaRoe, which sells clothing apparel through retailers known as "independent fashion consultants," violated the Antipyramid Promotional Scheme Act and Washington Consumer Protection Act with its incentives structure that made its primary business opportunity as "recruiting" instead of "actual retail sales to customers." 

LuLaRoe's bonus structure paid consultants "seven to 12 times more" than their merchandise sales which gave consultants the incentive to recruit more retailers instead of sell clothing to consumers, the Attorney General's Office said.  LuLaRoe also falsely said consultants would make $60,000 to $70,000 per year with a 20-hour work week and deceived consultants by only highlighting those consultants who met the "minimum purchase thresholds."

“LuLaRoe tricked consumers into buying into its pyramid scheme with deceptive claims of high profits and refunds for unsold merchandise,” said Washington Attorney General Bob Ferguson in a statement. “Instead, many Washingtonians lost money and were left with piles of unsold merchandise and broken promises from LuLaRoe. It’s time to hold LuLaRoe accountable for its deception.”

According to Ferguson's office, more than 3,500 Washington residents have signed up as consultants with LuLaRoe with less than 2,000 currently still active.

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