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LuLaRoe Going Down and Taking Good Hard Working American Moms With It

Written by Steve Rhode

Bad news continues to build for LuLaRoe, the multilevel marketing clothing company, and it’s leaders, DeAnne and Mark Stidham.

The LuLaRoe business opportunity caught fire in the past few years. Loads of housewives and women wanting to get in on the ground floor of the leggings and clothing company jumped in with both feet.

In fact, I know of a couple of wives who started their out LuLaRoe business only to be currently sitting and waiting for months and months to get the refund the company promised when merchandise was returned.

Recent court filings by LuLaRoe’s chief clothing supplier, Providence Industries, give enough alleged facts to believe the company is going down – fast.

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Providence Industries alleges LuLaRoe has not paid its bills in six or seven months. Longer surely now that the suit has been filed.

It is reported, “The supplier, Providence Industries, said in the suit that it has reason to believe LuLaRoe is insolvent, and accused the company’s founders, Mark and DeAnne Stidham, of hiding assets in “shell” companies to fund their “lavish lifestyle.” – Source

Other current suits involve several class action suits against the company. One in New York alleges LuLaRoe was charging sales tax but “LuLaRoe knew its collection of taxes in these jurisdictions was unlawful, but concealed this fact from consumers, actively misleading them regarding the legality of its practice.” – Source

Another case filed in California from some sales representatives says there are issues ” arising from their advertising, marketing, and sale of defective leggings and other clothing.” – Source

The last case states as of 2017 there were 80,000 “Fashion Consultants” selling LuLaRoe merchandise. However, others provide data saying that number has dropped, fast.

Issues started to slowly build as the company grew fast. Complaints came from sales representatives and customers who “have complained that the leggings are of such poor quality that holes, tears, and rips appear before wearing or during the first use. The Products have also been described as tearing as easily as “wet toilet paper.”

In 2017 the BBB issued an alert to consumers saying that “merchandise that has been reported to fall apart shortly after purchase and difficulty obtaining refunds. The company has an “F” rating with BBB.” – Source

The BBB said, “BBB files indicate that this business has a pattern of complaints concerning receiving defective and/or poor quality products. Customers also allege getting double charged for ordered products. Other complaints involve customers being charged the incorrect sales tax for their state. Customers describe having difficulty reaching customer service for resolution to their complaints.”

In a suit just filed by Providence Industries against LuLaRoe it is alleged Mark and DeAnne Stidham, the founders and driving forces behind LuLaRoe have been removing money from the company in an effort to “hinder, delay, and defraud creditors.”

DeAnne and Mark Stidham during happier times. –

Providence Industries conducts business under the name MyDyer and is in the business of apparel design, manufacturing, and supply. The complaint filed by Providence filed against DeAnne Brady, also known as DeAnne Stidham, and Mark Stidham, also mentions a number of other companies as Defendants. These additional companies include 159DE, Ghost Squadron, Inland Exotic, Lennon Leasing, Hudsloan Land Company, and 2000 Carolina Pines Dr LLC.

Providence Industries and LuLaRoe signed a sourcing agreement in April of 2016. Under this agreement, LuLaRoe would purchase products using purchase orders. As of the date of the lawsuit filed by Providence LuLaRoe is said to owe them more than $33 million.

The complaint alleges LuLaRoe (LLR) since August 2018 has been “ordering substantial products from other suppliers.” And Providence says LLR is “diverting to third parties (including to other suppliers) the funds that they owe to Supplier, notwithstanding that Obligors are as long as six months past due in their Indebtedness to Supplier.”

LuLaRoe Took a Turn for the Worse in 2017 With Bonuses and Refunds

Providence alleges financially LLR took a negative turn when the way they were paying bonuses and issuing refunds. The complaint says the LuLaRoe business “suddenly took a turn for the worse when they changed their policy for paying bonuses to their “independent fashion consultants” (i.e., their “Retailers”). Among other things, Obligors ceased paying bonus checks to its Retailers based upon the orders they purchased from Obligors, but instead began paying its Retailers bonuses based upon the number of products ultimately sold to the consumer. As a consequence of the bonus policy change, Supplier has recently been informed that by August 2017, Obligors’ monthly revenues dropped in half from approximately $200 million per month to $100 million per month, and a large number of Retailers began leaving Obligors.”

It is also alleged that the refunds promised to their sales representatives were unsustainable. The complaint says, “Supplier is also informed and believes that around the same time frame, from April 2017 through approximately September 2017, Obligors also instituted a 100% refund buyback offer for its Retailers. Supplier has recently been informed that as a consequence of the policy, Obligors have paid approximately $120 million in returns to its Retailers.”

Around the same time, Patrick Winget, the head of design and production for LuLaRoe and a guiding force, abruptly left the company.

It is alleged in the complaint that LuLaRoe is unwilling or unable to promptly pay refunds to its representatives and Providence also states LuLaRoe owes “more than $1 million to UPS for shipping costs resulting in Obligors using FedEx as an alternative shipper, much the same way that Obligors simply stopped paying Plaintiff and turned to alternative vendors. Other parties alleged to have huge unpaid balances are West Coast Labels, which supplies woven labels and hang tags, $100,000, and Zam Brand is owed $3 million for supplied garments.

Due to the number of current and additional claims against LuLaRoe, Providence Industries believes LuLaRoe is insolvent, potentially bankrupt if the obligations exceed their assets.

And Then It Gets a Bit Dark

Not only does the lawsuit against LuLaRoe raise the issue of unpaid bills, but also makes claims money is being or has been siphoned off instead of paying suppliers and representatives their refunds promised.

The complaint says, “Notwithstanding what appears to be Obligors’ precarious financial condition, its principals and owners (directly or indirectly), Mr. Stidham and Ms. Stidham, have acted in an improper manner to divert funds from Obligors to themselves, directly or indirectly.

In March 2018, during a business trip to Korea and Vietnam with Mr. Stidham and representatives of Supplier, Mr. Stidham showed off pictures of his multi-million ranch property in Wyoming, and stated that he was going to buy a neighboring ranch property adjacent to his current ranch in order to gain exclusive access to the river running next to the two ranches.

On or about September 7, 2018, Supplier engaged in discussions with Mark Stidham, who is the principal owner of Obligors (directly or indirectly), about the past due amounts owed by Obligors to Supplier. In response to Suppliers’ requests that Obligors repay the amounts they owed, Mr. Stidham told Plaintiffs representatives “look guys, I am not going to pay you guys a f***ing dime unless a judge orders me to pay it, and Deanne and I will take our two to three hundred million dollars to the Bahamas, and f*** everything.”

Plaintiff is informed and believes that Obligors have diverted funds to third parties at the direction of their principals, Mr. Stidham and Ms. Stidham, who have lavished themselves with luxurious lifestyles by misappropriating the money that Obligors owe to their legitimate creditors, including Plaintiff. For example, Mr. Stidham is widely reported to own exotic race cars, including a Koenigsegg CCX estimated to cost approximately $700,000 and a Koenigsegg Agera RS estimated to cost over $2 million. Mr. Stidham recently was reported to have engaged a professional driver to break the land speed record for a production car using one of the “supercars” he purchased with funds that likely came from Obligors’ coffers. The following is a photograph from reporting on Mr. Stidham, the “supercar” he purchased, and the record attempt:

Plaintiff is informed and believes that Ghost Squadron and Inland Exotic are entities in which Mr. Stidham has taken ownership of exotic race cars for purposes of shielding such assets from Obligors’ creditors. Plaintiff is informed and believes that Obligors, at the direction of their principals, have purchased private airplanes or transferred their funds for the purchase of private airplanes, which are held in the name of 159DE, for purposes of shielding such assets from Obligors’ creditors.

Plaintiff is informed and believes that Obligors, at the direction of their principals, have transferred valuable assets into Lennon for purposes of shielding such assets from Obligors’ creditors.

Plaintiff is informed and believes that Obligors, at the direction of their principals, have purchased valuable ranch homes and other properties in the names of Hudsloan Land, for purposes of shielding such assets from Obligors’ creditors.

Plaintiff is informed and believes that Obligors, at the direction of their principals, have purchased residences in the names of Hudsloan Land, for purposes of shielding such assets from Obligors’ creditors.

Plaintiff is informed and believes that Obligors, at the direction of their principals, have purchased residences in the names of 823 Ringdahl Circle, LLC and 4048 Suzie Circle, LLC, for purposes of shielding such assets from Obligors’ creditors.

Moreover, Plaintiff is informed and believes that Obligors have opened a new distribution center in Columbia, South Carolina, and that it may seek to take its assets out of California, which would delay Obligors’ California creditors from enforcing their judgment rights against Plaintiff. Plaintiff is informed and believes that Carolina Pines was created as an entity to hold these valuable assets.

Together, Mr. and Ms. Stidham, Ghost Squadron, Inland Exotic, 159DE, Lennon, Hudson Land, Carolina Pines, 823 Ringdahl Circle, LLC and 4048 Suzie Circle, LLC, are referred to herein as the “Transferees.”

Plaintiff is informed and believes that Obligors, through Mr. Stidham and Ms. Stidham, have created dozens of additional shell entities, which Plaintiff believes are part of a scheme to hinder, delay and defraud the creditors of Obligors and Mr. Stidham and Ms. Stidham. Of particular note, for example, is that between July 2017 and December 2017, the following entities were organized (primarily in the state of Wyoming), but most or all of which have identified 1375 Sampson Ave., Corona CA as their main office and one or both of the Stidham’s as an officer or manager. Of particular note, thirteen of the entities were created in December 2017 alone, shortly after a series of class actions were filed against Obligors.”

If LuLaRoe is in Such Desperate Trouble and Not Paying Then Why Are New Vendors Selling Them Products?

The lawsuit states “As of November 14,2018, Boss system records reflect that Obligors have ordered over $30 million in products from other suppliers, including Creative Apparel LLC ($3,211,250 in orders), Mad Engine, LLC ($2,400,000), RSGA Incorporated DBA InnovAsia ($18,404,940.45), and Zam Brand, Inc. ($5,315,052.00).

Obligors’ BOSS system records reflect that just in November 2018, alone, Obligors have ordered in excess of $10 million in products.”

So either LuLaRoe has suitable arrangements to be able to order and pay for new products or new suppliers are making some interesting moves in getting into bed with LLR given the current headwinds.

The most concerning debt from my point of view is the amount promised and owed to the independent sales representatives, two ow which I know and who have been waiting months and months for the refund check to arrive. If LuLaRoe is not in financial trouble then why not just pay the refunds due to their sales force as promptly as possible, within days once the unsold items have been returned to LuLaRoe?

Business Insider reports, “The privately held company releases little information about its operations, but a top LuLaRoe leader told us that she knew of two teams of sellers that had shrunk by roughly two-thirds from their peak. She estimated that LuLaRoe now has fewer than 25,000 consultants, down from the more than 77,000 it had in February 2017.

Among those fleeing are many of LuLaRoe’s highest-performing consultants, which include its top 100 sellers and several dozen mentors who managed teams of thousands of women. About one-third of these top performers — some of whom were earning upwards of $80,000 monthly at the peak of their business — have exited LuLaRoe since July, according to data we reviewed.”

Providence Industries says, “There is now due, owing, and unpaid from LLR to Plaintiff under the Sourcing Agreement, and otherwise, the amount of $48,732,955.45, plus additional interest accrued, attorneys’ fees and costs, and such other amounts as may be proven at trial of this action. In addition, LLR will owe Plaintiff further interest, costs, and attorneys’ fees incurred by Plaintiff through the date of trial in this matter.”

The total bill will seemingly accelerate.

You can read the full lawsuit filed by Providence Industries against LuLaRoe, below.

As far as how this will wind up being resolved, we will just have to wait and see. But my magic 8 Ball says it’s not going to be a smooth landing for most.

About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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