Money Crimes with Nicole Lapin - GREED: LuLaRoe

Episode Date: December 19, 2024

In the 2010s, LuLaRoe seemed to be everywhere. People with dreams of a successful stay-at-home business clamored for a chance to sell LuLaRoe's famously soft leggings. But there was more to LuLaRoe than met the eye. Many people who signed up with LuLaRoe were left with closets full of unsellable clothes -- and empty bank accounts. Money Crimes is a Crime House Original. For more content, follow us on Instagram and TikTok @crimehouse. To learn more about listener data and our privacy practices visit: https://www.audacyinc.com/privacy-policy Learn more about your ad choices. Visit https://podcastchoices.com/adchoices

This is Crime House. Being your own boss comes with a lot of perks. You don't have to answer to anyone, you can set your own hours, chase every big idea. The possibilities are endless. It's something a lot of people dream of, and something certain companies take advantage of. In the 2010s, thousands of people signed up to sell clothes for LulaRoe. Based on their social media presence, it seemed like LulaRoe's buttery soft leggings practically sold themselves.

All it took was a few thousand dollars to get started and you could start building your own fashion empire. But the reality is, only a few LuLaRoe consultants reached the promised land, leaving many others with empty pockets and broken dreams. As the saying goes, those who don't understand history are doomed to repeat it. That's especially true when it comes to money. If you want to make the right decisions when it comes to managing your assets, you need to know what mistakes to avoid and how to spot a trap.

This is Money Crimes, a Crime House original. I'm your host, Nicole Lapin. Every Thursday, I'll be telling you the story of a famous financial crime and giving you advice on how to avoid becoming a victim yourself. At Crime House, we wanna express our sincere gratitude to each and every one of you, our community, for making all of this possible.

Please support us by rating, reviewing, and following Money Crimes wherever you get your podcasts. Your feedback truly makes all the difference. And for ad-free and early access to Money Crimes plus exciting bonus content, subscribe to Crime House Plus on Apple Podcasts. This episode is all about LuLaRoe, the multi-level marketing company

that dominated social media platforms in the late 2010s. What started out as a way for Deanne Stidham to work from home eventually turned into a billion dollar clothing brand. By 2017, it seemed like LuLaRoe was unstoppable. One loose thread gave way to another until the whole thing unraveled. It's called Mind of a Serial Killer, and it's all about the deep dives into the psychology of the world's most terrifying murderers. Listen to it wherever you get your podcasts. Think about something you're good at. Now think about how you got there.

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Shop online for super prices and super savings. Try it today and get up to $75 in PC Optimum Points. Visit superstore.ca to get started. If you logged onto Facebook in 2017, chances are your inbox was full of event invites. Between all the potlucks and birthday dinners, there was probably one type of invite you couldn't miss, no matter how hard you tried. Especially if you were a woman. I'm talking about Lula Rowe parties.

After bursting onto the scene in 2013, the clothing company captured hearts with buttery soft fabrics and inclusive sizing. And that larger-than-life social media presence? Well, that's how Lularoe really made its name. But the people behind Lularoe used more than internet know-how to become a billion-dollar company. They preyed on a very specific type of person, stay-at-home moms.

The person who started it all was a woman who was just like them, or at least she used to be. Deanne Stidham's background was just as colorful as a flashy pair of Lularoe leggings. She was born in 1959 as Deanne Startup, if you can believe it, to a big Mormon family. And not just any family, Deanne's great-great-grandfather was Hiram Smith, brother to Joseph Smith, the founder of the Mormon religion. But instead of living in Utah, the startups lived in Los Angeles.

And even though DeAnn's family was very traditional, they had some non-traditional views when it came to gender roles. Like many people around this time, the startups believed a woman's job was to find a husband and support him to the best of her abilities. But unlike most other people, the startups didn't think that women should be quiet or demure. In 1969, Diane's parents published a book called The Secret Power of Femininity, the Art of Attracting, Winning, and Keeping the Right Man for you." Instead of telling girls to be modest and bashful, it basically said, go all out.

One notable passage encourages them to pout, shake their curls, and be dainty yet saucy. Diane took this to heart. As a child, she was spunky and outgoing, to a point where her friends felt like she was always… on. But it seemed like this approach worked for Deanne. In 1978, when Deanne was 19 years old, she married a guy named Kenneth Neff Brady. After marrying Kenneth, Deanne dedicated herself to supporting her husband, just like her parents

taught her. They had seven kids, and Deanne took care of them while Kenneth went to work. And while she did all the things a traditional housewife was supposed to do, Deanne always did it her way. Deanne had always loved fashion. As a mother, she wanted to dress herself and her family well. But the way she tells it, she couldn't justify the prices at big-box stores. So she mostly shopped at flea markets and swap meets around their home in LA.

One day, in the early to mid-90s, Dianne was out shopping at one of these markets. While browsing the stalls, she met a man selling what he said were high-end dresses. They looked just like the same dresses she saw at the department stores, but for a fraction of the cost. The vendor had bought them wholesale, which meant he bought them in bulk at much cheaper prices. Diane took advantage of the deal and bought four dresses for her daughters. It was a total score, but then she noticed that hardly anyone else was buying them.

There just weren't a lot of people like her coming to these markets. That gave Diane an idea. She asked the vendor if she could try selling his dresses to her friends. They were mostly young, stay-at-home moms, just like she was. But if they knew deals like this were out there, the dresses would sell like hotcakes. It's not clear exactly what kind of arrangement they came to, but the vendor let Deanne take racks of dresses with her. Once she got home and organized the dresses on racks in her living room, she called up her friends.

She told them she was hosting an in-home boutique dress-selling party. Bring your measurements and bring your wallets. Her friends called their friends who called their friends. During the first party, Deanne reportedly sold about 300 dresses. After the success of her first party, Deanne and the wholesaler decided to go into business together. It was a match made in heaven. He had the product, and she had the access to the right demographic.

Her work was probably a bright spot during what was otherwise a tough time. About 15 years into their marriage, sometime in the mid to late 1990s, Deanne and Kenneth decided to call it quits. It's not clear why they split, but it caused Deanne to fall on hard times. It seems like she got full custody of her children and didn't get much financial help from Kenneth. Despite the success of her business, Deanne says there were times when all she could afford for dinner was a burger and fries for all eight of them to split.

Of course, both things can be true. Even if her business was doing well, raising seven kids is not cheap. Diane was savvy, but even the savviest women struggle sometimes. And lately, life was a struggle. But Diane was a go-getter. She wasn't going to let life get her down for long. And once she saw an takes, make it invisible. The Agency, new series now streaming exclusively on Paramount+.

I am so dreading groceries this week. Why? You can skip it. Oh, what, just like that? Just like that. How about dinner with my third cousin? Skip it. Prince Fluffy's favorite treats? Skippable.

Midnight snacks? Skip. My neighbor's nightly saxophone practices? Er, nope. You're on your own there. In 1998, 39-year-old Deanne Startup was turning over a new leaf. She was freshly single, in charge of her own clothing resale business, and raising seven kids. Although she found strength and motivation through her Mormon faith, she was still struggling to make ends meet. Luckily for Deanne, a chance encounter was about to change all of that. One day in 1998, Deanne had to catch a flight and was seated next to a guy around her age.

He was friendly and charming, and they got to talking. His name was Mark Stidham. As it turns out, he was also Mormon and had kids from a previous marriage. Deanna felt like it was fate. She and her ex were still going through divorce proceedings when she met Mark, but the new couple got married pretty much as soon as they could. Their family now consisted of 11 children. Later, they adopted three more, bringing the total to 14. With so many mouths to feed, Deanne and Mark were working harder than ever. Deanne was still hosting her boutique parties, and Mark worked in construction. But like Deanne,

he didn't want the typical 9 to 5, at least not forever. They managed to make it work, though. By 2012, 14 years into their marriage, most of Deanne and Mark's children had left home and started their own families. Now that there was less pressure on them to provide a steady income, Deanne and Mark decided to take a risk. One day after Deanne finished hosting a dress selling party, Mark came to her with an idea. There were probably other moms who wanted to make money from home just like Deanne did. His timing was impeccable. One of Deanne's friends and longtime customers, a woman named Brittany, had just told her that

she wanted to sell clothes from her home too. Deanne asked Brittany if she wanted to team up and host a party together. The two women had their first event in August of 2012. It was a huge success. From there, Brittany took her business home with her to southern Utah. success. From there, Brittany took her business home with her to Southern Utah. Deanne sold Brittany the dresses for a little more than what she paid for them and Brittany did the same with her own customers. Brittany took a page out of Deanne's book. Actually, she took the whole book. She started hosting parties and eventually started recruiting more saleswomen, which led to her buying even more dresses from Deanne. Deanne and Mark realized they just landed on a jackpot.

In 2013, Deanne and Mark formed LulaRoe LLC. Named after the couple's first three granddaughters, the company promised to help other people succeed through this opportunity and touted itself as a business for families and built on the principles of entrepreneurship, freedom and service. Basically the idea was to let people be their own bosses. Instead of creating a network of physical stores, LuLaRoe sold its inventory directly

to individual salespeople who were referred to as consultants. The consultants would earn commission on their own sales plus those made by their recruits and those consultants' recruits. The line of recruits under someone was called a downline. Officially, LuLaRoe was structured as a multi-level marketing company, or MLM, which is a perfectly legitimate way to operate a business. But people often get MLMs confused with something very similar, but much less legal. I'm talking about pyramid

schemes. So what is a pyramid scheme exactly? Essentially, it's a business model that makes money based on recruitment fees instead of selling products. Sure, they might be selling something. One famous pyramid scheme sold educational DVDs. But the real way pyramid schemes make money is by convincing other people to join in. You pay to get in on the business, and whoever recruited you gets a cut of that fee. If you then recruit someone else, you'll typically get a cut of their fee, and so will the person who recruited you.

That chain continues down the line, until there's nobody left to bring in. That's why it's called a pyramid scheme. The few people at the top make a lot of money from all the people at the bottom. And it's not legal because it boils down to swindling people out of their hard-earned money. But even though LuLaRoe offered its consultants a cut of recruitment fees, I need to emphasize that it wasn't a pyramid scheme.

Because unlike a pyramid scheme, Lularoe's consultants could make real money selling its clothes. And especially in those early days, it seemed like everyone wanted what LuLaRoe was selling. LuLaRoe's product line included a range of clothing options, but what eventually made them famous was their leggings. These weren't your average run-of-the-mill yoga pants, no, LuLaRoe leggings were special. They were notorious for being super soft and super bright, with bold patterns and cool designs.

To get the company off the ground, Deanne started recruiting by word of mouth. When her customers mentioned that they wanted to be able to make money from home, she'd say, well, why don't you join LuLaRoe? Deanne treated her new recruits like family. She showed them how to fold and package their leggings so that people could see the patterns. She even helped them load up their cars with inventory. Once she flew to Washington State to help a new recruit launch her business. DeAnn's generosity and bubbly persona was like a magnet. She made other stay-at-home moms feel understood. She told

them how she valued their hard work and preached the importance of investing in your family's future. Women who felt like the invisible backbones of their families finally felt seen. And it was all thanks to Deanne. In March of 2015, some sources say there were about 2,000 LuLaRoe consultants. And they weren't just inviting people over for parties. They were using Facebook and other social media platforms to live stream events. All of a sudden, the list of potential customers and new recruits was practically endless. And a lot of Lularoe's consultants followed Deanne's lead and went all out.

Many of them dedicated entire rooms for these events with wall-to-wall inventory featured prominently in the backgrounds of their video screens. Demand was soaring and all of a sudden, Deanne and Mark were struggling to keep up. So instead of buying ready-made clothes from wholesalers, they decided to manufacture the leggings themselves. Mark was in charge of that process, and he teamed up with a supply company called MyDier,

which was owned by his friend Daniel Kang. And it wasn't long before Mark started sending Daniel massive production orders. But Deanna and Mark knew that mass production wasn't enough. Any brand could pump out inventory. The key was to cultivate a sense of scarcity. That meant making only a limited number of each pattern. But the demand for Lularoe items was so high, the company's team of about four designers had to create thousands of patterns every day.

To reach this quota, the designers often gained inspiration from patterns they found online. LuLaRoe's execs were fine with that. They told the designers that as long as the design was changed about 20%, they weren't doing anything illegal. A quick heads up, this 20% rule is a myth in the design world. Even if you alter something to that degree, it can still be considered copyright infringement. To that degree, it can still be considered copyright infringement. But for the moment, nobody was catching on to that.

Lularoe kept releasing tons of new designs. And when a design was especially popular, it was priced higher. To push that sense of scarcity even more, consultants had no say in which items they received. They could choose how many items they wanted to purchase, but they never knew which designs they got until they opened the box. If a customer was ever in search of a design that their consultant didn't have, the consultant could ask around and see if others had it. This reliance on one another cultivated a strong sense of community rather than competition among LuLaRoe consultants.

But it also meant that consultants had to spend more hours tracking down the items they wanted. But that wasn't Diane's concern. She felt on top of the world. It had been almost two decades since she bent on herself and carried home racks of dresses to sell. Now she was teaching other women to do the same, and she was helping them find a renewed sense of motivation. For every woman who wanted to launch their own Lula Rope business, there was another and another. But the world only needed so many pairs of leggings, no matter how cool the patterns were. And soon, Marc and Diane's growing empire would split at the seams.

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By March of 2015, LuLaRoe was booming. Stay-at-home moms loved wearing LuLaRoe clothing because it was comfortable enough to chase kids around the house in, but cute enough to actually leave the house in too. They loved selling Lularoe because they could do it out of the comfort of their own homes and on their own time. But becoming a Lularoe consultant was not cheap. The minimum starter package cost $5,000. Some packages could go as high as 10. As long as you could move inventory, it seemed like there was no downside to getting started

with LuLaRoe. For potential recruits, the opportunity was too good to pass up. So many people wanted to sign up, the company had a backlog of people waiting to be onboarded. And it wasn't just the financial benefits that enticed people, it was the community. And nobody embodied that community better than Lula Rowe's founder, 56-year-old Deanne Stidham. Deanne practically lived on social media. She'd go on Facebook Live in full glam preaching about the importance of living life based on passion and purpose. And you know what?

I can see how it was appealing. Raising kids and managing a household is tough. So when someone so beautiful, so successful, and so empowered like Deanne appears on your phone screen to tell you how worthy you are and that there's a small fortune waiting to be yours, you take the leap. And lots of people did. According to Forbes, by 2016 the company had over 24,000 active consultants and about 18,000 more waiting in the wings. To keep their membership active, consultants had to purchase at least 33 pieces a month.

That is a lot of leggings. But the problem was, a lot of those pieces weren't getting sold. With so many consultants, the market was oversaturated, and a lot of consultants weren't even getting sellable inventory. Remember, they had no choice over what patterns they received. For instance, a consultant named Christina Hinks said her first ever Lularoe shipment was full of South Southwest style prints. Think desert colors, cactuses, that sort of thing.

But Christina lived in Chicago where that style wasn't exactly popular. And even if consultants were able to sell their inventory, it was really hard to make a profit since you were constantly forced to keep buying more pieces. In 2017, Business Insider did a deep dive and found that more than 80% of LulaRoe's representatives generated less than $5,000 in sales, including about $10,000 who sold nothing. Remember that tight-knit community of consultants

that Deanne had cultivated? Well, they gossiped and vented to each other about their concerns. It got all the way up the chain and ended up getting Deanne and Mark's attention, but they weren't worried. By February of 2017, there were almost 80,000 consultants. In true DeAnn fashion, the company was constantly going big, rewarding its most successful members

with things like exclusive cruises and Katy Perry concert tickets. DeAnn and Mark did everything they could to show off what a successful career with LuLaRoe looked like, and it all started from the top. The Stidhams flaunted their lavish lifestyle, posting about their new mansion and Mark's fleet of expensive sports cars. They believed their success would help them attract even more consultants who wanted to be just like them. But behind all the nice stuff and fancy parties,

the people at the end of LulaRoe's downline were still very angry. In 2017, a Facebook group popped up and it rocked Mark and Deanne's world. The group was called LulaRoe Defective. It was created by a fed-up consultant. It wasn't the financial burden of being a consultant that tipped this woman over the edge, though. It was the fact that she had started receiving merchandise that was ripped, wet,

or even moldy. Her customers were unhappy, to say the least, and she was losing money on returned items. She didn't know what to expect when she launched the group. She just wanted a place to vent and try to understand what was going on. But before she knew it, other consultants flooded the group with similar complaints. It turned out the clothes may have been in such awful condition because they were allegedly

being stored outside, with no protection from the elements. With how rapidly the company had grown, they just didn't have enough warehouse space for all of their inventory. But was it because Deanne and Mark hadn't thought ahead? Or was it because they just didn't want to pay for it? In November of 2018, their manufacturing partner, My Dire, owned by Mark's buddy, Daniel Kang, sued Lularoe for failing to pay $49 million in bills. And Daniel didn't think it was because the company couldn't afford it.

In the court filing, he alleged that Mark had bought a bunch of sports cars in order to shield his assets. This kind of maneuver is called hidden value. Basically, people hide money in high-value assets like sports cars or paintings to keep their money from being easily tracked. It's also a way to dodge taxes by creating deductions or offsets. Hiding their money this way makes it look like they have less income and therefore can't afford things like manufacturing bills.

And sports cars weren't the only way Deanne and Mark were hiding their money. During the discovery process, MyDyer's lawyers uncovered dozens of LLCs tied to Lularoe. MyDyer argued that Lularoe was also hiding money across these smaller companies. These revelations set off alarm bells down the lines of LulaRoe's consultants, many of whom realized they'd been defrauded as well. In addition to pictures of poor quality clothing, consultants were now sharing the truth about their LulaRoe experiences. On social media, they'd made it seem like they were living their girl-boss dreams.

But in reality, they were struggling to make ends meet. On Facebook and elsewhere, LuLaRoe members shared videos and PowerPoints that other consultants had used to recruit them. These materials encouraged new recruits to take out credit cards, ask their families for money, and even sell their breast milk if it meant they could afford their starter packages. To the outside world, it started to seem like Lularoe was guilty of some serious wrongdoing. The state of Washington certainly thought so. In 2018, the state's attorney general filed a lawsuit against Lularoe, claiming the company

was running a pyramid scheme. And that was just the tip of the iceberg. Court documents revealed some surprising details about the company. For one, they suggested Lularoe may have tweaked its consultant compensation plan to dodge attention from the Federal Trade Commission. The case never went to trial, though. Eventually, the company agreed to pay almost $5 million to settle out of court. About 3,000 Washington state residents received monetary compensation. In a press release, Mark said that even though he and DeYen believed they'd win the case, they didn't want to waste time and money on a

lengthy legal battle. Mark has proudly stated in interviews that he settles every lawsuit that comes his way, but when it came to his friend Daniel King, he may have met his match. As of this recording, their legal dispute is still going on. In 2019, MyDyer increased the amount of alleged damages from $49 million to $63 million. A few months after that, Lularoe filed a $1 billion counter suit. They blamed MyDyer for all of the defective clothing. Then in 2020, Lularoe accused MyDyer's lawyers of unethical practices and tried to get them booted off the case. But California courts denied the motion. The most recent court filings I could

find are from 2022, so I guess we'll just have to wait and see what happens next. Despite the scandal and numerous lawsuits, Lularoe is still in business today, though it's operating with far fewer consultants than at its peak. The company continues to sell its products, but under much tighter scrutiny and supposedly with a much more cautious approach. Although if you peep Deanne's Instagram, it's like nothing ever happened. It's all glitz and glamour and it is very, very bright.

In the end, it's hard to say how many consultants lost money betting on LuLaRoe. Many are out thousands, some are saddled with debt, and others have even cashed out their savings to pay off that debt. Their experience is a good reminder that no matter how great an opportunity seems, if someone tries to sell you on spending money to make money, you should be very, very cautious. Thank you so much for listening. I'm your host Nicole Lapin. Come back next time as I take you through another wild story and offer you some advice along the way.

Money Crimes is a Crime House original. Join me every Thursday for a brand new episode. Here at Crime House, we want to thank each and every one of you for your support. If you like what you heard today, reach out on social media at Crime House on Tik Tok and on Instagram. And don't forget to rate, review, and follow Money Crimes wherever you've got your favorite podcasts. Your feedback truly makes all the difference.

And for ad free and early access to Money Crimes plus exciting bonus content, subscribe to Crime House plus on Apple podcasts. Money Crimes is hosted by me, Nicole Lapin, and is a Crime House original powered by Pave Studios. It is executive produced by Max Cutler. This episode of Money Crimes was produced and directed by Ron Shapiro, written by Sarah Batchelor, edited by Natalie Persovsky, fact-checked by Sarah Tartov, sound designed by Russell Nash, and included production assistance from Sarah Carroll.