LuLaRoe, the multi-level marketing retailer, has a thing or two in common with gangs and the mafia, according to a new lawsuit. The billion dollar California-based apparel company has been hit with a second class action lawsuit in under a month, both of which classify the company as a “pyramid scheme,” and this time, it is also being charged with violating the federal Racketeer Influenced and Corrupt Organizations Act, which was enacted thanks to a section in the Organized Crime Control Act of 1970, and serves as one of the government's most important tools in the fight against organized crime.
In the most recent case (you can read more about the other recent class action suit here), which was filed in federal court in California on October 23, Aki Berry, Cheryl Hayton, and Tiffany Scheffer – former LuLaRoe sales representatives – are seeking $1 billion in damages after they claim that they were “unknowingly recruited into [LuLaRoe’s] pyramid scheme through manipulation and misinformation. [They] were told that the opportunity entailed ‘part-time work for full time pay.’ This was not the case.”
Berry, Hayton, and Scheffer claim that LuLaRoe – which was founded by DeAnne Stidham, who, according to the company’s website, was a single mother of seven children, when she launched LuLaRoe in 2012 – relies on individual sellers (technically independent contractors, as distinct from employees), who sign up to act as “consultants” for the brand, and earn a commission based on their sales.
The three women allege that “once consultants sign up, they are pressure to invest and reinvest by purchasing [increasing amounts of LuLaRoe] clothing products – regardless of whether they were able to sell their inventory.”
They claim that they “and tens of thousands of other consultants never even made a profit. Instead, they were duped by [LuLaRoe’s] endless chain scheme that only profited a few and only made payments to consultants based on how much product those consultants and their recruits purchased on a regular basis."
Berry, Hayton, and Scheffer further assert that regardless of how “committed” consultants are or how much “time and effort they put in,” LuLaRoe’s business model set its consultants up to fail. “They failed because they were doomed from the start,” states the complaint.
By “paying millions to those few at the top of the company at the expense of the many at the bottom through a ‘pyramid scheme’ or ‘endless chain,’” as many as 80,000 people, according to the plaintiffs, LuLaRoe is running afoul of the law, namely, the Racketeer Influenced and Corrupt Organizations Act, and California’s Unfair Competition Law, among others.
Some of the questions that the lawsuit alleges are at issue include: “Whether Defendants were (and for how long) or are currently operating an unlawful scheme,” “Whether Defendants omitted to inform Plaintiffs and the Class Members that they were entering into an illegal scheme where an overwhelming number of participants lose money,” and Whether Defendants engaged in acts of mail and/or wire fraud in direct violation of RICO.”
In addition to a trial and monetary damages, the named plaintiffs have asked the court to certify their class action suit to enable "all persons who were and are LuLaRoe consultants from 2013 until present” to join the suit and share in the ultimate monetary settlement.
LuLaRoe has called both recent lawsuits “baseless and inaccurate.”