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Corona-Based LuLaRoe Hit With $1 Billion Class-Action Lawsuit, Accused Of Running Pyramid Scheme

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The clothing line and multilevel marketer LuLaRoe was served a $1 billion federal class-action lawsuit this week on behalf of all women who have sold their merchandise since 2013, alleging the company forces product distributors to buy far more product than they can sell. The suits also allege LuLaRoe falsely claimed its consultants—that is, people who buy and sell the LuLaRoe products—were promised much larger paychecks than they received.

The lawsuit says the Corona-based company encourages consultants to take out loans and rack up credit card debt in order to purchase more product, according to NBC. LuLaRoe reportedly encouraged consultants to have "at least 10 items in every size in all styles" at all times. The company also requires an initial inventory investment of $5,000 to $9,000, according to the Riverside Press-Enterprise. Many women were unable to sell all the products they purchased but were consistently encouraged to continue building their inventory. As such, the lawsuit describes the company as a pyramid scheme facing collapse.

CBS points out the accusation of "pyramid scheme" comes from the California-based lawsuit and that no federal definition of the term exists. Other multilevel marketers that operate with similar business plans include Mary Kay Cosmetics and Herbalife.

The Press-Enterprise report describes another lawsuit filed earlier in October, where four women claim LuLaRoe rescinded a 100% refund buy-back program for consultants who chose to stop selling LuLaRoe clothing. The company reportedly changed their program retroactively, offering a 90% refund and no free shipping instead. "We decided to end the waiver when it became evident that a good number of Retailers were abusing the program by returning product in extremely poor condition and providing inaccurate claims," LuLaRoe said, according to the Press-Enterprise.

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LuLaRoe had $2 billion in sales this past year, according to the Associated Press. The company is most well-known for its leggings, which come in wide range of sizes and colors. LuLaRoe has called the lawsuits "baseless and inaccurate," according to the Associated Press.