LuLaRoe supplier demands immediate seizure of $34 million of assets after the CEO's alleged threats to 'jump ship' with its riches
- LuLaRoe's chief clothing supplier, Providence Industries, has demanded that a court immediately seize nearly $34 million in assets from the company.
- The demand, made in court filings on Tuesday, claimed LuLaRoe CEO Mark Stidham is a flight risk due to his access to a private jet and his alleged threats to "jump ship" with the company's riches.
- The filings come after Providence Industries sued LuLaRoe last week for nearly $49 million in a lawsuit claiming the multi-level marketing company has failed to pay its bills for seven months.
- A sworn statement from LuLaRoe's head designer of five years, Patrick Winget, claimed that Stidham has made several alleged threats to flee with the company's money.
- LuLaRoe did not immediately respond to a request for comment on the filing.
A LuLaRoe supplier has demanded that a court immediately seize nearly $34 million from the multi-level marketing company, claiming its CEO is a flight risk because of his access to a private jet and his alleged threats to "jump ship" with the company's riches.
The supplier, Providence Industries, filed the demand on Tuesday in California state court, along with a number of sworn statements by key executives from both parties. A hearing on the matter is scheduled for Wednesday.
"These are not empty threats," one of the filings states. "Because of the close-knit and largely family-nature of the … business, Mr. and Mrs. Stidham will be able to immediately abscond with all of the cash assets… (as he has threatened to do), particularly because they have ready access to a private jet which they may use on a moment's notice."
The filings come after Providence Industries sued LuLaRoe last week for nearly $49 million in a lawsuit claiming the company has failed to pay its bills for seven months.
LuLaRoe did not immediately respond to a request for comment on the latest developments in the case. In a previous statement on the lawsuit sent to Business Insider, LuLaRoe said, "We believe the claims in this case are completely without merit and will fight vigorously against them."
The newest filings include a sworn statement from LuLaRoe's head designer of five years, Patrick Winget, in which he said that LuLaRoe CEO Mark Stidham had made several alleged threats to flee with the company's money. Winget quit working for the company in September.
"While I was flying with Mark Stidham in his jet in 2018, Mark complained about the conduct and accusations by the retailers, and told me that he could just 'jump ship' from LuLaRoe and that he would take hundreds of millions of dollars from LuLaRoe and move to Wyoming or the Bahamas with DeAnne," Winget's statement said. "This was not the only time he made such statements to me, and he would frequently tell me that he would leave the company and take its money out for his and his wife's personal benefits. Mark Stidham told me his goal is for people to ask: 'Have you seen Mark?'"
In another sworn statement, Joseph Choi, the president and cofounder of Providence Industries, claimed he witnessed Stidham make an alleged threat to flee.
Choi said in his statement that he and another Providence executive confronted Stidham on September 7, 2018 about bills past due, and Stidham allegedly said, "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."
The filings also claim that LuLaRoe recently contacted a liquidator to sell more than $46 million of products. The filings include an email from this liquidator, which details the items LuLaRoe allegedly tried to sell.
"There is imminent risk that Obligors will abscond with the proceeds of this liquidation unless they are restrained from doing so," the filing states.
Claims of mounting debt, fleeing sellers, and a hunt for new suppliers
Providence Industries' lawsuit claims that LuLaRoe is insolvent, based in part on information from Winget, who was the fifth employee to be hired by LuLaRoe in 2013.
According to Winget's sworn statement, LuLaRoe's monthly revenue abruptly dropped from roughly $250 million to $100 million in mid-2017 after it changed the structure of its bonuses. These bonuses had previously been paid to sellers, also called consultants or retailers, based on how much their teams (or those sellers under them) purchased wholesale from LuLaRoe. The new structure based bonuses instead on retailers' sales to customers.
Over the next several months, a rush of retailers started exiting the company and returning their unsold goods to LuLaRoe for refunds. This is because LuLaRoe had a buyback policy promising refunds for unsold goods.
Between April 2017 and September 2017, Winget said he had weekly meetings with LuLaRoe's chief supply chain officer and chief financial officer "in which they appeared worried about mounting debts to retailers for returns and LuLaRoe's obligations to repay the retailers," Winget's statement said.
"By August 2017, LuLaRoe was having difficulties paying the supplier for products ordered, and was concerned that it would be unable to sell all of the pre-cuts it already ordered from the supplier," the statement said.
Stidham allegedly had a plan to revive the business by recruiting more sellers, Winget claimed.
"Mark Stidham informed me that his plan was to recruit more retailers to try and sell more of the products and to make up for the significant reduction in retailers, sales, and revenues," Winget's statement said.
Then in June 2018, Stidham allegedly complained that the costs of doing business with Providence Industries were too high, according to the filing. During this discussion, Stidham's son-in-law allegedly said that he had found a supplier who could provide LuLaRoe with clothes at half the price of Providence Industries, according to the filing.
Winget said he voiced concerns about factory conditions and clothing quality from a supplier promising such low prices.
"Mark Stidham told me, 'I don't give a shit what this new guys' factory looks like, I just want new product.'"
Winget said in his statement that by the time he left the business in September 2018, LuLaRoe's number of active sellers had dropped to 35,000, down from the more than 77,000 it had in February 2017.
LuLaRoe CEO says the lawsuit is 'just the normal course of business' and he's 'not too worried'
In a video meeting with LuLaRoe sellers on Tuesday, Stidham said he's not worried about the lawsuit.
"I do want to take one brief moment and just address the lawsuit, ok, I think most of you have heard of it or you know something about it," he said, according to a recording of the meeting obtained by Business Insider. "I'm not too worried about what's going to happen and where things are going to go. This is just the normal course of business."
He said the company is excited about the upcoming year encouraged LuLaRoe sellers not to be alarmed.
"It's great to be aware," he said. "Don't be alarmed. Focus on what your business needs from you and trust me, and trust our legal team, and trust those of us at home office that we will take care of the things we need to take care of so that you can continue to build your business. We're committed to that. We love you."