SPOKANE, Wash. - Washington Attorney General Bob Ferguson is suing women's clothing giant LuLaRoe, saying the company operates under a pyramid scheme and tricked consultants to buy in.
The lawsuit states consultants paid onboarding fees ranging from $2,000 to $9,000 to join the multi-level marketing business. Consultants would buy 33-piece inventory sets including clothing with random prints at wholesale value, sell them at a retail price, then be encouraged to turn around and buy more clothes with the profits, said former consultant Valerie Goodell.
Ferguson writes in the lawsuit "...it was clear that the primary opportunity for compensation was not through sale of LuLaRoe apparel, but bonuses earned through recruiting."
Two former consultants spoke with KXLY Wednesday, saying they each paid at least $5,000 to buy into the company. Both Valerie and Dina Wilson, another former consultant, said they didn't focus on recruiting during their time with LuLaRoe.
Dina said she paid about $6,500 for her initial LuLaRoe package plus leggings. In her first year of selling, she said she made $400. It was even worse this year.
"2018, I will be losing money," she said. "A lot of the stuff became very hard to sell and I sold a lot of things for a dollar to five dollars."
Dina said she racked up so much credit card debt, she had to sell her travel trailer to cover her losses.
"You know, I went into this believing what I had been told. You know, believing that it was easy to make money, the stuff sells itself, that's what I was told," she said. "Full time income, part time work, that's what I was told. And none of it came true."
Ferguson's lawsuit claims consultants had to endure a complex process to initiate a refund. The attorney general says the refunds were only worth 90 percent of what consultants bought, and that consultants had to pay for shipping costs.
Dina and Valerie said that's part of the reason why they left LuLaRoe, then sold items at discounted prices.
"I would get a box, open it, display it, photograph it, sell it, and then maybe sell, you know, 10 to 20 pieces so then I'd be left with 10 pieces," Valerie said. "I look at all this product and I know that I chose to purchase it and so I feel like it's my responsibility to find a way to liquidate and offload this inventory. I could send it back to LuLaRoe, but I really don't want to wait that much time to get the money back."
Though Valerie doesn't blame LuLaRoe for the position she's in.
"A lot of people are angry and I understand that, but I also feel like when you go into business you have to know the risks going in, and the risk is that you'll have inventory leftover that you won't know what to do with and you're going to have to work hard to get rid of it so that you can get some of that money back," she explained. "There is no such thing as a zero-risk business."
Ferguson has filed four charges against LuLaRoe, including pyramid scheme and misleading income claims. Those who have run into problems with LuLaRoe are encouraged to call the Attorney General's Consumer Resource Center at 1-800-551-4636 or file a complaint online.
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