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Mark Stidham Scam and Dishonest LuLaRoe Deposition (Full) — Transcript

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0:16ugh
0:30good morning we are on the record this
0:32is volume one in the videotaped
0:34deposition of mark stidham and the
0:36matter of state of washington
0:38versus llr inc that's all
0:41cause number one nine 19-2-02325-2
0:49s-e-a
0:51in the state of washington king county
0:53superior court and was noticed by the
0:55plaintiffs
0:58the time is approximately 9 10 am on the
1:0118th of day of 2019 december we are
1:04convening at 50 20 campus drive newport
1:07beach california 926 660
1:10my name is craig ellingson from buell
1:13real time reporting llc
1:15located at 1325 4th avenue suite 1840 in
1:19seattle washington 98101.
1:23well council and all president please
1:24identify themselves for the record
1:28joe canada from the attorney general's
1:30office with me here today is tiffany lee
1:32and on the phone is brena roos
1:35anthony tadaro from dla piper on behalf
1:37of the witness and all defendants and
1:39with me is bill florado's general
1:41counsel of louisville
1:44the court reporting will now swear in
1:45the witness
1:50did you raise your right hand
1:51you do solemnly stayed under penalty of
1:53perjury that the evidence you shall give
1:55in this matter will be the truth the
1:56whole truth and nothing but the truth
1:58yes
2:01good morning mr siddum
2:06one moment
2:12can you please state and spell your full
2:14legal name
2:15mark allen stidham
2:18it's mark with a k
2:19alan is a-l-a-n
2:22stidhum is s-t-i-d-h-a-m
2:27mr sidham have you been deposed before
2:29yes
2:30when
2:32multiple times when was the last time
2:34you were deposed
2:38i don't recall the exact date but
2:40recently
2:41what was the case name
2:43i'm sorry what what was the case name
2:45or what was the
2:47lawsuit
2:48it was uh probably providence industries
2:52versus lularoe
2:56and before the providence case
2:59when was the last time you were deposed
3:03i i don't know
3:05have you were you deposed prior to that
3:07case sure yes how many times
3:13um
3:15more than one
3:16i i'm not keeping a log of depositions
3:22can you give me a time frame was this
3:24past five years past yeah in the past
3:26i think i was deposed in the uh
3:30you know sales tax case
3:34and was that sales tax case did that
3:36involve lularoe yes
3:38okay
3:38other than the providence case and the
3:40sales tax case have you been deposed in
3:42other matters yes
3:43do you generally recall the subject
3:45matter of those cases
3:48i was an expert witness
3:50in a
3:52real estate
3:53case
3:55and when was that
3:5725 years ago
4:01so other than the providence case the
4:03sales tax case
4:04and the real estate case
4:06have you been into posting other cases
4:10not that i recall at this time
4:12have you ever testified in court yes
4:16in what matters
4:19again as an expert witness
4:21in that same real estate case yes okay
4:24have you testified in court in any other
4:26matter yes
4:28in the uh
4:30the cms
4:31case
4:32and i don't recall if i was deposed in
4:34that case or not but i testified in
4:36court on that case
4:39other than the real estate matter and
4:40the cms matter have you testified in
4:43court on any other occasion
4:46not that i recall
4:51so it sounds like you've been here
4:52before but i'll just review some of the
4:54general procedures for depositions
4:57the court reporter a moment ago puts you
4:59under under oath you understand that
5:02you're under oath here today yes and
5:04that your testimony here today is the
5:06same as if they were
5:08being given in court yes and in fact
5:10your
5:12video may depending on the circumstances
5:14be played in court yes
5:16is there any reason that you can't
5:18provide complete and honest and accurate
5:20testimony today no any medications no
5:23medical conditions no any other reasons
5:25you could possibly think of no
5:29and the court reporter has the
5:31difficult job of recording every word we
5:33say
5:34uh so that means a couple of things
5:36which
5:37are not intuitive to a normal
5:39conversation
5:41we have to not speak at the same time
5:42there's only one of her she can't
5:44transcribe two people at once
5:46you have to respond audibly uh-hus
5:49shaking in the heads things that we
5:50normally do all the time don't really
5:52work here
5:55and this is more for me but i will try
5:56to speak slowly
5:59do you understand all those guidelines
6:01yes
6:04there may be times when your council
6:05objects uh
6:08primarily those are for background legal
6:10reasons uh unless he instructs you not
6:13to answer i would ask that you
6:15answer
6:16if a question is given despite an
6:18objection
6:19okay
6:21i would also ask that if you don't
6:22understand my question you tell me and
6:25give me the chance to clarify
6:28can you do that yes
6:30and if you answer a question i'm going
6:32to assume that you understood the
6:33original question is that fair yes
6:39generally i'll try to take a break once
6:40every hour
6:41but if at any time you need to take a
6:43break you should let us know the only
6:45caveat is that if there's a question
6:47pending we i would ask that you answer
6:48the question before taking the break
6:50okay
6:55what did you do to prepare for today
7:00i had a meeting with my attorneys
7:03and when was that
7:07last week
7:09and by your attorneys are you referring
7:10to mr todaro and mr
7:13lorados i believe
7:15yes was anyone else present yes who was
7:18president
7:19other council
7:23john scolnick
7:25and i don't remember the
7:29other person's name
7:30was that other person associated with uh
7:34the law firms or the council yes okay
7:37and how long was that meeting
7:40i'm sorry what how long was that meeting
7:41with your counsel
7:48probably
7:49three to four hours
7:52did they show you any documents
8:02um
8:06yes
8:08do you recall if those documents
8:10um
8:12there
8:14what were those documents
8:17specifically
8:19i recall looking at a response to
8:21interrogatories
8:23and to the suit the actual
8:28suit that was filed
8:30other than those two documents did you
8:32review any other documents
8:37it's possible
8:39i don't recall specifically
8:41were the documents that have been
8:42produced in this litigation
8:45they would have a little number on the
8:46bottom right corner
8:48again it's possible i i don't require i
8:51don't really remember any specific
8:53documents
8:58do you remember the
9:01general nature of those documents what
9:03subject matter they dealt with
9:08no again i don't have a recollection of
9:11any other specific documents so i recall
9:13looking at the response to
9:14interrogatories i recall looking at the
9:16suit
9:17and when i say i don't recall is it
9:20possible they showed me something else
9:22they may have
9:24but i don't have a specific recollection
9:25so i don't have a recollection of what
9:27they were about either i understood
9:32and before today
9:34other than your attorneys did you talk
9:36about
9:37your deposition with anyone else
9:42no
9:43did you mention it's your secretary
9:49did i talk about it or did i acknowledge
9:51that i had it either one oh yeah yes my
9:54wife knows i'm in a deposition and uh
9:58i don't have a specific secretary but
10:01my wife knows and i'm sure
10:05i told other people i wasn't available
10:07today because i was going to deposition
10:09got it did any of those people assist in
10:11preparing you for today no
10:14i noticed that you brought a notepad
10:16with you today does that contain notes
10:18from your meeting with your journeys
10:21what's in it
10:24notes from
10:25i don't really know i i like a notepad
10:28whenever i'm doing something
10:31that page isn't even mine my wife did
10:33that page it's a notepad i picked up and
10:35brought so that i would have a notepad
10:37in front of me if there were things that
10:39i wanted to remember or things that i
10:41wanted to uh
10:44just take note of from the from this
10:46meeting
10:53how are you currently employed
10:57i work for
11:00for lularoe
11:04and what's your
11:06position at lularoe i am a
11:09co-ceo and president co-president
11:13your co-ceo and your co-president yes
11:16who is the other uh or others uh ceos or
11:20presidents that would be my wife deanne
11:22brady
11:24and how long have you had
11:27those co-positions
11:30since the company was
11:33incorporated
11:34and when was that
11:37um
11:44i believe that the the llc was
11:46incorporated in january of uh
11:492014
11:51but i believe that the uh
11:54uh look there's there's there's the two
11:57companies and and i believe the
11:58corporation was incorporated in early
12:02uh
12:032015 i believe
12:06don't know exactly
12:08okay so back up one sec so there's a
12:10corporation early 2015 and then there's
12:12an llc
12:14roughly january 2014. and is it lularoe
12:17corporation and lularoe llc
12:21i believe that they are referred to as
12:23lularoe
12:24llc and llr inc
12:35and are you the co-ceo of both entities
12:38yes
12:39and the co-president of both entities
12:40yes
12:44and those titles have been the same
12:46since both of those entities
12:49came into existence
12:51to the best of my knowledge
12:54um we
12:55we're a small family organization and so
12:59we don't stand on the formality of
13:00titles and so they're
13:03to to the best of my knowledge yes
13:09and what are your
13:10responsibilities and duties as co-ceo
13:14and co-president
13:17um
13:22that's that's a broad question
13:24all of the activities that a ceo would
13:27would do i i oversee the complete
13:29operation of the company
13:31including finance production
13:35manufacturing
13:36order fulfillment
13:40basically all all operations
13:47and as between you and your
13:50co-ceo slash co-president do you divide
13:53those
13:54duties
13:55uh
13:56divvy them up divide and conquer or do
13:57you both handle them all how does that
13:59work
14:01there is a
14:02division of responsibility um
14:06not formal but
14:07just in our operations uh
14:10deanne is
14:13is is more focused on
14:18on the sales side of the business and
14:21the
14:21fashion side
14:23and i'm more focused on the fulfillment
14:26and operation side
14:37and how are you compensated
14:40for your employment for llr and lularoe
14:44i receive a salary
14:46i think don't recall
14:48other than your salary do you receive
14:50compensation from lularoe
14:52or llr
14:54a bonus for example
14:57i'm sorry can i have the question sorry
14:59what for example a bonus for example
15:01okay that question re-read please
15:07other than your salary do you receive
15:09compensation from layla row or llr a
15:12bonus for example
15:14and that's relative to your position as
15:16an executive no
15:20do you participate in the leadership
15:21bonus program at lularoe no
15:27are you on the board of lularoe or
15:31llr
15:34there's not a formal board go ahead i'm
15:36sorry
15:37there's not a formal board
15:39for either for either
15:45do you own
15:48stock
15:49or shares in either entity
15:52no
15:57where is the main office that you work
15:59at
16:01at the moment i work out of 1375
16:04sampson avenue
16:11and what
16:13is that the lularoe or the llr office
16:18they're
16:21they're components of both companies
16:22that share office space
16:33is there an office space for an entity
16:34called lenin leasing
16:39there's there's not a specific office
16:41space for london leasing
16:43what what is lenin losing
16:45lenin leasing is an llc
16:50are you employed by lenin leasing
16:53no
16:55how is it affiliated if at all with
16:57either lularoe or
16:59llr
17:00lenin leasing owns the
17:03trademarks in intellectual property
17:06that lularoe uses in its business
17:10does it have any employees
17:12no
17:16and a moment ago you noted that diane
17:21focuses on sales and fashion
17:23you focus on fulfillment and operations
17:26where does marketing fall within
17:29the ceo slash presidency
17:32responsibilities
17:36i would say that marketing that we both
17:39have input
17:40on that
17:46who at the company
17:49if anyone assists you or dean with
17:51marketing
17:54we have a
17:55several employees that are in the
17:57marketing department
18:00is there
18:01who's the
18:03head of the marketing department
18:05uh currently it is a gentleman by the
18:08name of warren simpson
18:11can you spell that for the court
18:12reporter yeah it's l-o-r-e-n
18:15and then simpson
18:17s-o-n
18:19sim sun
18:23like the cartoon
18:28um and a moment ago you said that you
18:30don't have any stock in little row or
18:32llr is that right that's correct uh are
18:34there any shareholders
18:37yes
18:38and who are they
18:40understood
18:42and
18:43can you run through who your children
18:44are
18:46i know it's a long list
18:48you're gonna make me spell them all too
18:52um
18:53kenny brady
18:57amelia lyon
19:00nicole or nicole thompson
19:05jordan brady
19:08michael brady
19:14alex brady
19:18daniella brady
19:23um
19:25austin stidham
19:29morgan stidham
19:34devin stidham that's d-e-v-o-n
19:40alexa
19:41stidham
19:46i believe that's the ones that are on
19:48the trust
19:51and michael brady does he go by i'm
19:54going to butcher the pronunciation mihai
19:56mihai
19:58and miriam
19:59and pardon marion
20:02m-a-r-i-o-n
20:05and can you spell me hi for the quarter
20:09m-i-h-a-i
20:13and amelia lyon and nicole thompson um i
20:16assume those are made uh married names
20:18yes what were there they were both brady
20:28i'm going to run through that list again
20:30and if you could let me know
20:31if that individual has a role at either
20:34lularoe or
20:36llr that we appreciate it and what that
20:38role is so kenny brady yes
20:40and what he's doing he is the vp of
20:42sales
20:43amelia lyon
20:45yes
20:46she is a photographer
20:49nicole
20:50thompson
20:52jordan brady
20:54yes
20:56and i believe jordan works
20:59um
21:01there there's some overlap in sales and
21:03marketing but he's in
21:07in a role there
21:09somewhere
21:11uh michael brady
21:13um yes
21:15michael is our
21:18head of production
21:22what does a head of production do
21:28he's in charge of the production of our
21:30products got it
21:32uh alex brady no
21:36danielle brady no
21:38austin still yes
21:40austin is
21:42in charge of uh
21:44he does
21:46compliance and analytics
21:51morgan stidham no
21:55davonson no
21:57alexis did them
21:58one office or do you have multiple
22:00offices we me personally personally just
22:03one okay and
22:08i understand as ceo you have a wide
22:10range of responsibilities
22:12so you know roughly how much time do you
22:14spend in the office versus elsewhere in
22:17connection with your
22:24work i i would say
22:30i don't know probably
22:3240 of my time in my office
22:34and where else do your does your job
22:36take you everybody else's office
22:40uh speaking of which so where are larose
22:43other or llr's other offices
22:47we have offices
22:50i do not know the address off the top of
22:52my head but it's on it's in a
22:55a place called dos lagos and it's in
22:58corona
22:59but a in an office building
23:02we also have
23:03offices at our
23:06fontana production facility and we also
23:08have offices in south carolina at our
23:11facility there
23:12and are all the executives management
23:16kind of in your location no
23:19how is the company organized across
23:22offices
23:28so at
23:30right at this moment finance
23:35and hr
23:37are in the same building i'm in
23:43warehousing and fulfillment are spread
23:46between fontana and south carolina
23:51and
23:54sales marketing production and i.t
23:58are in
23:59the dos lagos building
24:12so
24:21i assume uh in your office there's
24:23there's a computer
24:24yes um are there
24:27paper files
24:30minimal and also you're mainly a
24:32electronic computer guy
24:34no
24:35but in terms of records and workflow
24:37most of it goes through
24:38um little sort of
24:41electronic resources
24:45um
24:50yeah
24:51i
24:51yeah i guess we can say that yeah
24:55and uh what is your lularoe email
24:57address
25:01do you use any other email addresses in
25:03connection with luro no
25:05what about llr
25:08it's all the same
25:10geo
25:12uh do you use
25:14instagram
25:19um
25:19yes
25:21uh in connection with your work
25:23somewhat
25:25and what's your instagram name or handle
25:30that's a great question
25:33i i've posted 16 times got it yeah okay
25:37um when you say do i use instagram
25:39mostly i follow other people on
25:41instagram okay
25:42um
25:44what about twitter do you use twitter
25:46i'm sorry what what about twitter do you
25:47use twitter no
25:49uh
25:50what's the primary way you communicate
25:52with your your management team telephone
25:54or in person okay
25:58uh did you text them
26:00occasionally
26:04we need to have
26:05that be marked confident is that a
26:07personal cell phone yes that's well it's
26:10the only one i have okay
26:21so you mentioned that lularoe was
26:24incorporated
26:26one of the entities was incorporated in
26:28early 2014
26:30one in early i believe you said 2015
26:34putting aside when the entities were
26:36formed
26:37when was the first time you or diane
26:39sold a product
26:41using the name lularoe
26:51again i couldn't tell you exactly but my
26:54best guess would be early in 13.
26:57maybe late in 12.
27:04was this the maxi skirt pardon me is
27:06this the maxi
27:07yes
27:08so that was the first product yes
27:12and that's maxi
27:16right yes
27:31so i believe you said that lularoe has
27:32no directors is that this true for llr
27:35as well
27:36it has no directors i'm going to object
27:39on the foundation and mistakes let me
27:41restate the question does lularoe have a
27:43board of tractors no okay does llr have
27:46a board of directors no
27:53we touched on this a little bit when we
27:55were running through
27:56various individuals who work uh
28:00at lularoe but could you run through the
28:03departments or divisions of the company
28:09well so there's marketing there's sales
28:11there's compliance there's finance
28:13are there other other other departments
28:17okay
28:19so
28:20we already mentioned noel knighton as
28:22the chief financial officer
28:25i have
28:26art mccracken
28:28uh
28:30you spell it
28:32you're going to be as good as i am
28:34i think it's m.c.k.r.a.c.k.e.n
28:37[Music]
28:42he's my chief strategy officer
28:45john west is
28:48the
28:49chief supply officer meaning
28:52supply forward
28:55michael brady is the chief production
28:58officer
29:00kenny brady is the vp of sales
29:05lauren simpson is the chief sales and
29:08marketing
29:10officer
29:13guillermo lopez
29:16is the
29:19chief technology officer
29:29and
29:30i i believe that
29:32that covers them
29:33and you know when you say that they're i
29:35mean like
29:36obviously there's it goes way deeper
29:38than that they're asking about the
29:40the the people that report to me that's
29:43that's the structure
29:44and those people have people that report
29:46to that correct okay so so they're
29:48managers is that fair to call them that
29:50yeah okay uh you said for
29:53uh west that he's chief supply forward
29:55did i hear that
29:57that means
29:58he
29:58he's fulfillment of the product he
30:00manages our warehouses
30:02and uh processes for fulfillment of
30:05orders
30:07and for mccracken west simpson and lopez
30:10are any of them
30:12related to you by marriage birth
30:14adoption
30:35i can ask you for about a few more names
30:38uh
30:40that i don't think we've covered um who
30:43is jill nielsen
30:45i'm sorry who who is jill nielsen
30:48that would be kenny brady's wife okay
30:51does she have a role of the company
30:53no okay
30:59ben ward
31:02ben is works in the sales department
31:08so he would be under mr simpson under
31:10kenny or mr simpson yeah
31:20jairo martinez
31:26jairo i believe works
31:32i think cairo reports to michael but i'm
31:34not sure in what capacity
31:39megan alvarez
31:41megan works reports to michael also on
31:43the production team
31:45grace nicole santayana
31:49no idea okay
31:50summer johnson
31:52summer i believe it is uh
32:00she's on the sales team somewhere
32:03and and
32:04grace nicole is probably nikki santiana
32:08yeah and she's on a sales team
32:11i believe okay
32:14got it um
32:17mark allender
32:20marco
32:20allender a-h-l-a-n-d-e-r
32:26doesn't not ringing a bell for me some
32:28of these might be formers also former
32:30employees
32:32tim transtrom
32:36say it again tim
32:38tim is actually a
32:40outside consultant i believe
32:43and who within the company does he work
32:45with
32:49um
32:54i'm not quite sure of uh of tim's
32:58reporting occasionally he reports to me
33:00but i'm not sure
33:04he's probably an i.t
33:06would be my my guess on tim
33:11jared ingram
33:14no
33:16doesn't work there
33:18did he ever yeah and what was his role
33:20he worked in sales
33:24[Music]
33:25and i understand mr florado is uh
33:28in-house counsel yes
33:31or as we refer to him as outhouse
33:33counsel
33:36he's general counsel he does not he's
33:38not an employee got it okay that was my
33:40next question um and robert lowell
33:43similar roles
33:45uh does robert logo like bob yes
33:48are there any other
33:49bobs
33:50that you're aware of that work for the
33:51company
33:53there is a
33:54bob
33:56um
33:57allender i wonder if that was your
33:59hollander guy um i don't know all under
34:02a h l a n d e r
34:06who manages events
34:09okay
34:09any other bobs
34:11huh any other bobs
34:15not that readily come to mind
34:17i mean we have 700 employees i
34:19understand quite possibly there's a bob
34:21out there
34:22justin lyon
34:25yes justin is
34:27works in the marketing department
34:31this is a hard one siri nice n-e-a-s
34:35series in accounting
34:37and is syria a man or woman
34:39a woman and what does she do in
34:41accounting she answers all my questions
34:43her name is siri
34:46she's our controller
34:51and what are her responsibilities as
34:52controller
34:54i'm i'm not real clear on exactly what
34:56her responsibilities are she reports to
34:58the cfo
35:07uh
35:08is there any does doug
35:10i don't have last name does that ring a
35:12bell dog is there a dog that who's a
35:14high level management at all
35:19it's not
35:21not that i'm aware
35:27and i know that was a long list but
35:32for those that i asked you about are
35:34anything related to you
35:36yes yahoo
35:39justin lyon is a son-in-law
35:44who's he married to amelia
35:48okay
35:50any others
35:52i don't would you read through the list
35:53again yeah i can do that quickly
35:56bad ward no uh
35:58jairo martinez no
36:00megan alvarez no
36:02nikki
36:04no uh
36:05summer johnson nope
36:07tim transtrom no jared ingram
36:10jared is a nephew
36:13dan's nephew
36:17uh
36:18what are the names of his parents
36:21rick and diane ingram
36:26uh either mr florado or lowell no
36:30justin oh we already talked justin uh
36:32siri no
36:33okay
36:38turning back to
36:39bigger picture
36:41does lularoe or llr conduct any business
36:45outside of the us
36:50yes
36:51and what business does it conduct a lot
36:53of our production
36:56is outside the u.s
36:59is that primarily asia and uh south or
37:01central america yes
37:04does it have does lura or lr have any
37:06production facilities in europe
37:10not that i'm aware of
37:12canada
37:13no
37:18other than production
37:21does either lularoe or llr
37:24conduct business outside of the us
37:26uh at this moment no
37:29i and i say that because we've been
37:31working to get into canada for some time
37:33but we're not we're not there yet so
37:36when you say in this moment potentially
37:37in the future but what about the past no
37:42do you ever have to travel to europe for
37:44lularoe or llr business
37:48no
38:05when you
38:06measure performance of lularoe
38:09or llr what what metric
38:12do you focus on
38:13and let me do you focus on sales do you
38:16focus on profit what do you view as i
38:18guess a
38:19key performance indicator for the
38:20company check to form
38:22vague overbroad
38:26um yeah there's multiple
38:29what we would refer to as kpis and
38:33retail sales is definitely one of the
38:36large ones
38:42we look at
38:48sales
38:50of
38:51of the retailers of the independent
38:53fashion retailers
38:55we have
38:57metrics around their their growth
39:07and our own internal sales
39:12okay let me just address those one by
39:15one so retail sales that would be sales
39:18of ifrs to
39:20everyday people out there correct
39:23and then you said metrics around
39:25ifr growth do you mean
39:28the number of ifrs that
39:31are associated with
39:33lularoe or do you mean some other form
39:35of ifr growth no i mean their individual
39:37growth as a business
39:40i see so individual ifr performance
39:43right
39:45and then uh internal sales was that the
39:47final one
39:48yes
39:49and would that also be called wholesale
39:51sales wholesale sales and that that
39:52would be sales from lularoe to ifrs
39:55correct
39:59council you're just about to your hour
40:01and there's a call i have to return
40:04anytime that would be convenient for you
40:05to take a break
40:16why don't we take
40:18a can we go off the record for a sec
40:21off the record the time is 9 59 am
40:50going back on the record the time is 10
40:5210 a.m
40:53joe before we go forward i think the
40:55witness has a couple of things he wants
40:56to correct
40:57his testimony
40:59yeah there are two things apparently um
41:02llr inc does have a board of directors
41:05that's deanne and myself
41:09i was
41:10thinking of the llc but apparently the
41:12inc does have that board
41:14and then the the other one was whether
41:17or not we had gone to europe on business
41:20and
41:21yeah actually we have taken trips to
41:23europe
41:25scouting fashion
41:28milan
41:30romania and
41:37milan i understand romania is a fashion
41:40oh yeah bucharest okay yeah absolutely i
41:42obviously don't know what uh i think
41:43about fashion but okay um
41:45thank you for those clarifications um
41:48before sorry before the break we were
41:50talking about the
41:52growth of
41:54the metrics around ifr growth i'd like
41:57to turn to the other metrics retail
41:59sales and wholesale
42:01sales
42:03and i understand
42:06ruler has experienced tremendous growth
42:08so i'm just trying to get a sense of
42:09that
42:10in 2013
42:13roughly what were the retail and
42:15wholesale sales
42:17so in 2013 i did not have any tracking
42:20on retail sales
42:23wholesale sales were roughly three
42:25million dollars
42:30did you uh were attempts made to track
42:33retail sales and they're just
42:34unsuccessful
42:35you know in in 2013 i don't think we
42:38were
42:40really paying close attention to retail
42:43sales
42:44as
42:46as a specific for tracking
42:49because the company was very very small
42:51we knew all of the ifrs and so we were
42:53having conversations about their
42:55business and their success and what they
42:57were doing
42:58but we weren't overly concerned with
43:01tracking
43:02retail sales
43:04we
43:06you know at that time
43:08and
43:09roughly how many half hours were there
43:14um well
43:15starting with zero and then going to
43:19i would say by the end of the year
43:21possibly
43:23150 to 200.
43:27and again i'm going to tell you right
43:29now that's a gas that's just
43:31from the hip understood uh for the
43:33number of ifrs is the wholesale sales
43:35the 3 million is that similarly i guess
43:38or no the three million is pretty close
43:40okay good um
43:42okay 2014 um what were the
43:46retail sales and wholesale wholesale
43:49sales again in 2014 uh not tracking
43:52retail sales
43:54accurately yet
43:57wholesale 9.6 million
44:03and best guesses to the number of ifrs
44:08now you're really pushing me to guess
44:12i would say
44:14maybe a thousand
44:18turning to 2015 what would the retail
44:21sales and wholesale sales again very
44:24little visibility on retail
44:27wholesale sales of i believe it was 73
44:30million
44:33anthony would you pour some water for me
44:37and in 2015
44:39you said limited visibility into retail
44:41sales were any
44:45attempts made to try and track retail
44:47sales in either
44:482014 or 2015.
44:55i'm not sure exactly when the efforts
44:59started but in 2015 definitely we were
45:02making efforts
45:14turning back to 2015 we left off with
45:16wholesale at about 73 million
45:19best guess as to how many ifrs in 2015.
45:27i
45:30i would prefer not to make a best guess
45:34i don't really even have a
45:36much of a
45:38of a clue on where we were there okay uh
45:41understood
45:422016 uh what
45:45were
45:46lularoe's retail and wholesale sales
45:502016.
45:53i again i don't have retail off of the
45:56top of my head i don't think we had
45:58great visibility into that
46:01wholesale sales were
46:04around 1.2 billion dollars
46:17um
46:18do you feel comfortable guessing as to
46:20the number of ifrs in 2016.
46:23it's okay if you don't no okay
46:27moving along to 2017
46:30what were lula rose
46:32retail
46:33sales and wholesale sales
46:37again i don't have i don't have retail
46:39readily off the top of my head wholesale
46:43close to 1.6 billion
46:48and you say you don't have it available
46:50is it because
46:52like the earlier years it wasn't tracked
46:54or you just can't recall right now
46:56no i i just can't recall right now i
46:58have reports that i look at um
47:01if i need
47:03you know when i'm looking for it i have
47:05readily available reports
47:07so beginning in 2017
47:10the company was able to have more
47:12visibility into retail sales
47:15mid
47:162017
47:19and what happened
47:21what solution
47:23became available in may 2017 that
47:24election that's where we implemented the
47:28retail success programs and the system
47:32that we're currently operating
47:43in 2018
47:45um
47:46sorry in 2017 do you have
47:49and i guess as to how many ifrs there
47:51were yeah that one i do know because
47:54that's where we hit
47:55uh i think probably close to our our
47:58peak and it was around 90 000
48:01that would be my best estimate of it
48:05so when you say you hit the peak it was
48:07at the peak of the peak of the number of
48:09ifrs was the peak of wholesale sales at
48:11the peak of retail sales it was the peak
48:13of ifrs
48:24in 2018 what were the
48:27retail sales wholesale sales and ifrs
48:31in 2018
48:35again i don't recall retail off the top
48:37of my head wholesale was 500 million
48:44and i recognized that 2019 isn't
48:47quite done
48:48but what uh so far are the retail sales
48:51wholesale sales and ifr numbers for this
48:54year again i'm not as
48:55facile with retail
48:58wholesale sales are
49:00probably going to end the year at 3
49:02340 maybe 340 340 million 340 million
49:07yeah got it
49:09and
49:10active ifrs is about 18 000 right now
49:34uh you mentioned you had a correction
49:36about
49:37the
49:39board members on
49:41the llr
49:45does the llr board have board meetings
49:53i i guess we do
49:57uh how frequently i don't know
50:01when was the last one
50:03um
50:07again i don't know
50:11it sounds like it was
50:13not a formal process but are there
50:15minutes or meetings or meeting minutes
50:17or agendas
50:18documentation related to the board
50:19meetings
50:22again i'm going to
50:24i'm just going to have to say i don't
50:26know there may be we may have had
50:28meetings where minutes were kept
50:30um
50:32i don't have a recollection
50:34so you said that you and deanne are on
50:37the board
50:39who would have kept if those documents
50:41exist who who would have had them i
50:43again
50:45don't know
50:55i've seen references in some of the
50:58documentation to
51:00exec meetings
51:01uh
51:02who comprises is there an exact team
51:06yes and who's on the exact team
51:10um that would be
51:14art mccracken
51:15nol knighton
51:18john west
51:25guillermo lopez
51:29lauren simpson
51:36that would be what i consider to be the
51:39executive team
51:43and and in those meetings uh in
51:45attendance oh and obviously deanne and
51:48myself yeah
51:51and often times in those meetings
51:54general counsel can be present and
51:57sometimes other members of the sales or
51:59marketing teams are
52:02compliant
52:06and is there
52:08a standing
52:09or recurring meeting exact meeting
52:12is it called ad hoc how does how does
52:14this
52:14call it the executive meeting and how
52:17frequently does it happen
52:18a weekly
52:25do you as ceo
52:28slash president do you have other
52:31recurring meetings
52:36no not scheduled recurring
52:44meetings earlier we talked about your
52:47compensation as being salary without a
52:50bonus component for the execs
52:52are they all salaried
52:54yes
52:55do any of them receive
52:58bonuses tied to company performance or
53:01um
53:02in
53:03past years bonuses have been paid
53:06the last two years now
53:12and what was the metric by which the
53:15bonuses were calculated two years ago
53:20what i thought was fair
53:36what factors did you consider kind of in
53:38determining that
53:40objective if you want to identify an
53:43individual and a particular bonus in a
53:45particular year
53:51i considered overall team performance
53:54and i considered company performance and
53:56profitability
54:04and
54:06mechanically or administratively how are
54:08you how are you paid by the row do you
54:11receive a check direct deposit
54:14direct deposit okay and what bank do you
54:17use objection what's the relevance of
54:19what his personal bank is
54:21how does that relate to the claims that
54:23the state has brought
54:29we believe it goes to restitution
54:31potentially that's a that's a
54:33post-judgment thing
54:35if if we need you know if we need
54:38secondary proceedings if the state
54:40obtains a judgment
54:41and
54:43defendants are incapable of paying then
54:45you can go into that supplemental
54:47proceedings and the like but i don't
54:48want his personal bank accounts
54:50noted here are you instructing him not
54:53to answer
54:54yeah you need to give me some relevance
54:55to that i mean you need to conduct this
54:57deposition targeting discovery that's
55:00relevant to your claims so if you can't
55:02articulate it then yes also you can
55:04protect the order on that so are you
55:06instructing him not to identify the bank
55:08that he uses are you going to give me an
55:11explanation for how that
55:14is something that's fairly in the
55:15purview of discovery i believe i have
55:17but we obviously disagree so i just want
55:19the record to be clear whether or not
55:21he's being instructed not to answer so i
55:23want the record to be clear that under
55:24the civil rules specifically civil rule
55:2630h you are not to ask questions that
55:29are clearly beyond the scope of the
55:31claims that the state has brought this
55:33is not within the scope of any of the
55:35elements of the claim that the state has
55:37brought if your only justification is
55:39potential supplemental
55:42collection issues that's for
55:43supplemental proceedings so it's an
55:46improper question all i want to know is
55:49if you're instructing
55:50a witness not to answer if you're
55:52persisting on a question that operates
55:54in violation of cr-30h then i will get
55:57the judge on the phone
55:59if you want to move on we can move on i
56:02will move on although
56:04i anticipate we will come back to this
56:20okay we'll start that process at the
56:22break
56:25um
56:32do you receive any compensation under
56:34the leadership bonus plan object asks
56:38no
56:41i would also request that only council
56:43of record make objections at today's
56:45deposition if that's
56:49we can do that thank you i can just poke
56:51him in there yeah exactly i'm objective
57:01okay
57:16so you mentioned that
57:19i believe it's mr simpson lauren simpson
57:22is chief of sales and marketing
57:28how long has he had that role
57:32uh probably about three months
57:35who was his predecessor
57:39uh justin lyon
57:43and how long did mr lyon hold that
57:44position
57:51probably since
57:53its inception but
57:55i don't know the exact timing on that
57:57but for a couple of years at least
58:04and who held that position before mr
58:05lyon there was not a position before
58:07that
58:10uh
58:11regardless of whether or not the
58:12position existed who
58:15was responsible who who was responsible
58:17for marketing issues prior to mr lyon so
58:20mr lyon was responsible from the time he
58:22came on board which was
58:24in
58:25probably
58:262013. got it okay um
58:44how long has lularoe had a legal
58:46department
58:48okay to the phone
58:56i don't know that we
58:57do have a legal department
59:00we have council that is
59:03that we've retained and we've had
59:04council from the very beginning
59:08and
59:09how long has lularoe had a compliance
59:16department uh
59:20again
59:21from basically from the very beginning
59:23there have been elements of compliance
59:27and i believe currently it's mr austin
59:30stidham who handles compliance yes has
59:33he had that role since the beginning
59:40uh the best of my recollection i'll say
59:41yes
59:44uh you know as
59:46just for clarification as to why i'm
59:49saying the best of my recollection
59:51as the business started
59:53it was small
59:55entrepreneurial and many people wore
59:57many hats a lot of a lot of things got
59:59done
1:00:00and then people began to migrate into
1:00:02roles where they had uh
1:00:06more confidence or or more
1:00:09ability
1:00:12and uh
1:00:14drilling down a little bit uh in the
1:00:16marketing and compliance divisions uh
1:00:19how many people does mr lyon in
1:00:20marketing manage
1:00:22roughly
1:00:23objection vegas to time it's mr simpson
1:00:26in that role now
1:00:29that's a fair point so why don't we
1:00:31talk about now first
1:00:36um
1:00:38you know again i
1:00:40i don't know i'm going to say that
1:00:42there's probably
1:00:4420
1:00:47to 30 people in that department don't
1:00:49have the exact
1:00:51work chart in my mind
1:00:55is there an org chart that covers all of
1:00:57lularoe
1:00:58no okay or maybe let me let me go back
1:01:01maybe hr may have a complete org chart
1:01:05uh in
1:01:072016 2017 time frame
1:01:10what was the size of the marketing
1:01:12department
1:01:13i no i don't know
1:01:16turning to compliance uh
1:01:19roughly how many people does austin
1:01:20student manage now
1:01:22i believe that he has probably about
1:01:26five
1:01:29in 2016 2017 time frame roughly how many
1:01:33people did he manage no idea
1:01:48for the compensation team
1:01:55roughly how large is that team now
1:02:01i'm not sure what you mean by the
1:02:02compensation sign let me check back on
1:02:05my notes
1:02:07is there a compensation team
1:02:10i i don't believe there's a compensation
1:02:12team okay
1:02:14i've seen references
1:02:16called compensation team t period e
1:02:19period a period m
1:02:21uh what is that
1:02:23um
1:02:26again i don't know what the
1:02:29comp i don't i i don't know what a
1:02:31compensation team would be
1:02:33if there's some somebody referring to it
1:02:35that way
1:02:37and it may be
1:02:40well never mind i'm not going to tell
1:02:42you what api because i don't know
1:02:45okay
1:02:47i've also seen references something
1:02:48called comp calculations at lularoe.com
1:02:52uh what is that email address
1:02:55uh i believe that would be for somebody
1:02:58who is
1:03:00wondering how their compensation check
1:03:02was
1:03:03was calculated that they would send a
1:03:06question there
1:03:09and so those would be so who who would
1:03:11respond at the company who would be
1:03:12responding to emails sent to that
1:03:14address
1:03:17somebody in customer service
1:03:21and who manages customer service
1:03:24each department has customer service
1:03:27elements we don't have a central
1:03:29customer service
1:03:33so that's compensation to ifrs who in
1:03:37the company
1:03:38deals with compensation to
1:03:40you know internally ifr employees
1:03:44could you reread that please
1:03:50so that's compensation to ifrs who in
1:03:53the company deals with compensation to
1:03:55internally
1:03:57oh okay so i did not ask that question
1:04:00correctly who at the company
1:04:02handles
1:04:04lularoe employee compensation
1:04:07we have an hr department
1:04:11and
1:04:12who within the hr department handles
1:04:14lularoe competition
1:04:21i would need
1:04:23clarification
1:04:25regarding whom
1:04:28at the executive level there was there's
1:04:30different input than there is in the uh
1:04:33for instance a higher in the warehouse
1:04:36so the exact level who the exact level
1:04:39uh would be uh
1:04:42would be noel knighton the cfo
1:04:46and deanna and i
1:04:52and
1:04:52for lack of a better phrase the first
1:04:54rank and file who handles those
1:04:56employees
1:04:57um
1:04:59i i don't really know how that process
1:05:01works
1:05:05uh i've seen reference to technical team
1:05:09t period e period a period m
1:05:12is is that a reference to leverage i.t
1:05:15department most likely
1:05:17and how big is that team
1:05:19i don't know
1:05:21i assume you would not know how big that
1:05:23team was in 2016 or 2017.
1:05:32is there a
1:05:33damages department
1:05:36i believe there is
1:05:40and who
1:05:41manages that department
1:05:45again i don't know who manages it
1:05:49do you know the size of that department
1:05:52no
1:05:54but that department deals with
1:05:58damaged products
1:06:02from the ifr's perspective
1:06:04yes okay
1:06:06do they also deal with damaged product
1:06:07that
1:06:08little row receives but doesn't send on
1:06:11two ifrs
1:06:12yes
1:06:13this is the same department that handles
1:06:15both
1:06:17i'm not positive
1:06:20i know that people handle both of those
1:06:22functions but i don't know if they're
1:06:24under the same management
1:06:38we've talked a lot about lularoe's
1:06:40employees i want to talk a little bit
1:06:41about consultants and vendors
1:06:43so currently
1:06:45who
1:06:46supplies
1:06:47the liberal product
1:06:52we have multiple vendors
1:07:09turning to a different vendor
1:07:11service quest
1:07:13what is service quest and
1:07:15assuming they were a vendor when did
1:07:17they provide service to lularoe
1:07:21service quest provided
1:07:24services starting in a
1:07:27probably around
1:07:29august of 2013
1:07:34and i don't recall the exact
1:07:37time frame that their services were
1:07:39suspended
1:07:43you say services were suspended uh
1:07:46were they canceled cancelled yes so they
1:07:49were cancelled
1:07:50prior to i guess the
1:07:52terms of the contract so what you're
1:07:53saying no
1:07:55so would
1:07:56it would be fair to say they expired
1:07:58pursuant to the contract
1:08:00um i don't believe that the contract had
1:08:02a time frame got it okay
1:08:05uh and what services did they provide
1:08:08um
1:08:13they provided
1:08:14consulting services
1:08:18relevant to
1:08:21the network marketing industry
1:08:24compliance guidelines
1:08:27policies and procedure guidelines
1:08:29compensation plan guidelines
1:08:33some limited legal services
1:08:36around
1:08:42sales tax structure
1:08:44and compliance and
1:08:48some
1:08:50general trade and ftc guideline issues
1:08:58trying to unpack that a little bit uh
1:09:00when you say network marketing the
1:09:02network marketing industry
1:09:04is that also referred to as multi-level
1:09:06marketing
1:09:07it can be yes
1:09:09can you explain to the court what
1:09:11multi-level marketing is object to the
1:09:13form
1:09:16um
1:09:17i mean i can but it's irrelevant to our
1:09:20business
1:09:22i mean would you like me to explain it
1:09:26well
1:09:29so you do not consider lularoe a
1:09:30multi-level absolutely not
1:09:33do you consider lularoe a network
1:09:36in the network marketing industry not
1:09:38specifically no
1:09:51does lularoe hire
1:09:55outside accounts
1:09:58yes
1:10:00which company are who are the
1:10:01accountants
1:10:03again i don't know the name of the firm
1:10:04but we have audited financials
1:10:08and do those audits occur how frequently
1:10:10do those audits occur annually
1:10:15i'm going to run through some names that
1:10:17i've seen in the documents
1:10:19uh and hopefully you can tell me who
1:10:20they are who is citric and company based
1:10:23in los angeles
1:10:25no idea okay
1:10:27uh hud's loan enterprises
1:10:32uh sloan enterprises was a company that
1:10:35we
1:10:36that lularoe organized
1:10:38to manufacture
1:10:42early on in our development we we
1:10:44actually manufactured some of our own
1:10:46clothing
1:10:48so was it a subsidiary
1:10:52um
1:10:54i'm not sure who how the structure was
1:10:57quite honestly i don't remember if it
1:10:58was owned by llr if it was on somewhere
1:11:01else um not sure but its only client was
1:11:03lularoe yes okay and what time frame uh
1:11:07did it exist or perform this
1:11:09manufacturing function
1:11:12again a best of my recollection
1:11:15mid to late 2015
1:11:18probably for a six to eight month period
1:11:24uh
1:11:28when it was started uh
1:11:30was it intended to be a short-term
1:11:34uh existence
1:11:36um
1:11:38i i don't believe so
1:11:40um why did it only exist for eight
1:11:43months
1:11:44uh because the efficiencies of
1:11:47manufacturing our own clothing
1:11:50first of all we couldn't scale it enough
1:11:51to meet our needs and
1:11:54we had
1:11:55better options
1:11:57and uh earlier you mentioned that the
1:11:59contract with my dyer was late 2015
1:12:02did lularoe transition from hud's loan
1:12:05to my tire yes
1:12:14there's a company
1:12:16spelled n
1:12:17u
1:12:18v e i
1:12:20does that
1:12:21name mean anything to you
1:12:23now
1:12:46so we are going to start
1:12:48with our first document report reporter
1:12:51will
1:12:52stamp it uh for you and
1:12:56at the end of the day she will hold on
1:12:58to them so please do your best to keep
1:13:00them
1:13:00together
1:13:12so we're starting with exhibit 40
1:13:17two
1:13:32[Applause]
1:13:39so exhibit 42
1:13:41in the bottom right hand
1:13:43is what's called base number llr
1:13:46wa
1:13:48zero zero zero zero eight nine three one
1:13:53it's marked confidential
1:13:56it appears to be an email from nol
1:13:58knighton and if i remember correctly
1:13:59he's your cfo
1:14:01to
1:14:03michael brady who is another executive
1:14:06and the subject is llr
1:14:10and on it are a variety of attachments
1:14:13those attachments are also included
1:14:19okay
1:14:26i recognize that you're not on this
1:14:28email but do you recognize the
1:14:30attachments
1:14:31to it
1:15:04[Applause]
1:15:09yes
1:15:14and the on the cover email
1:15:18the
1:15:19attachments are listed
1:15:21as the llr articles of incorporation
1:15:24the llr bylaws
1:15:27a trust valuation report for llr
1:15:30officer minutes
1:15:32ownership of llr
1:15:34lularoe
1:15:36llr 2017 annual report
1:15:39llr 2017 annual report receipt
1:15:44and the llr articles incorporation do
1:15:46you see that yes and are those the
1:15:48documents that are attached to this
1:15:50email yes
1:16:02i would like
1:16:04to well let's back up for a second
1:16:07um
1:16:11this email was dated march 29th 2017.
1:16:16do you know why mr knighton was emailing
1:16:18these documents to mr brady objection
1:16:20lack of foundation
1:16:21no
1:16:23was
1:16:24llr
1:16:26considering any
1:16:30corporate transactions
1:16:32in
1:16:33that time frame
1:16:36objection big and overbroad
1:16:41not not that i'm aware of
1:16:44for example acquiring someone else
1:16:46selling itself going public
1:16:48issuing shares anything like that no
1:16:50okay
1:17:05so i'd like to move on to
1:17:09the ifr
1:17:12program
1:17:16so it's eleven fifteen it seems like
1:17:18this is a transition point
1:17:20now it'd be good to take a break okay
1:17:24off the record the time is eleven
1:17:25seventeen
1:17:36so
1:17:47going back on the record the time is 11
1:17:4927 a.m
1:17:54i did have one last question on exhibit
1:17:5642. 42
1:17:59for the or two last questions um
1:18:02if you dig through that pile
1:18:04there's something called the profit
1:18:06corporation annual report
1:18:09baits
1:18:10number ends in 8968
1:18:24and in the middle of this page it has
1:18:27some of your information
1:18:29uh
1:18:31including a phone number and an email
1:18:36do you see that yes
1:18:39what um
1:18:40is that email address used for
1:18:43i believe that's a
1:18:45typo
1:18:46i don't have
1:18:48i don't use that email okay i mean or i
1:18:50may have that email account
1:18:52i don't use it
1:18:57when was the last time you checked that
1:18:59email account
1:19:01i honestly don't believe i've ever
1:19:02checked that email account okay
1:19:07and then my second question is if you
1:19:08turn a couple more pages you'll
1:19:12find the
1:19:13lularoe valuation report
1:19:18bates numbers ends in 8972
1:19:22it was prepared by greener
1:19:25equity
1:19:28before today had you seen this document
1:19:30before
1:19:35i believe i may have yes
1:19:41why was this valuation report prepared
1:19:45to
1:19:47value the company that was
1:19:50being
1:19:51transferred i suppose
1:19:55um
1:19:56and transfer just have referring to the
1:19:58trust
1:20:00thank you
1:20:04okay now i believe you can put
1:20:06that exhibit aside there's more than two
1:20:07questions
1:20:24earlier today you you stated that
1:20:28you don't consider lularoe
1:20:30an mlm or a multi-level marketing
1:20:32company
1:20:34did you ever consider lularoe an mlm
1:20:37nope
1:20:45when did you first learn what an mlm
1:20:48was
1:20:53probably in about
1:20:561982
1:21:02okay my understanding was you were
1:21:04involved in the construction business uh
1:21:06so i'm surprised that it was that early
1:21:08what what led you to learn about uh mlms
1:21:10in 1988 actually probably before that my
1:21:12parents were amway distributors in the
1:21:1360s
1:21:15in 1982
1:21:18my
1:21:19wife at the time was involved in a
1:21:21network marketing company
1:21:25and which one was that was it amway
1:21:28it was called the cambridge diet
1:21:32was your then wife involved in any other
1:21:35mlms
1:21:36i don't who knows what she was involved
1:21:38in
1:21:39prior
1:21:40to lularoe have you been involved in
1:21:44other mlms yes which ones
1:21:48so
1:21:50dan and i were involved in a company
1:21:52called aola
1:21:54e-o-l-a
1:21:58and when was that
1:22:03from
1:22:05she was involved before we were married
1:22:07and so
1:22:08we were married in
1:22:1198
1:22:13so my involvement started in 98
1:22:17probably for the next
1:22:20six to eight years it seems like
1:22:23i don't know
1:22:25ballpark is good enough a long time ago
1:22:27and what uh
1:22:29what product did
1:22:30they they had a weight loss product and
1:22:33nutritional products
1:22:35and you do consider
1:22:37you'll you'll uh hey uh an mli
1:22:41yes okay
1:22:42um
1:22:43any other mlms
1:22:45important any other mlms that you've
1:22:46been involved with
1:22:48um
1:22:53do you know there were others um
1:22:56i don't recall specifically
1:23:01but there were others were you um
1:23:05uh
1:23:06was it you or deanne that was
1:23:09distributing the product
1:23:10for these others
1:23:12um
1:23:13it would have been both of us together
1:23:15involved
1:23:17roughly how many others
1:23:19i would say maybe three or four
1:23:22roughly what time period
1:23:24from 90
1:23:26or from from whenever we ended with
1:23:28ayola
1:23:31through
1:23:33um
1:23:36i don't know it seems like
1:23:38uh
1:23:42i'm just i'm trying to put dates in my
1:23:44head and see
1:23:46um you know through the early 2000s
1:23:48maybe
1:23:50and
1:23:51during that involvement of the various
1:23:54mlms
1:23:55were you
1:23:57employees of the mlm or
1:24:00independent
1:24:01distributors retailers we were
1:24:03independent
1:24:14distributors what is the direct sellers
1:24:17association
1:24:20sometimes referred to as the dsa
1:24:24i i think the question answers itself
1:24:26you know as much about them as i do
1:24:28uh well so by that answer do you mean
1:24:31that uh
1:24:32direct sellers are mlms
1:24:37i don't think i said that okay so
1:24:40why don't you describe for the court
1:24:42what the direct sellers association is
1:24:44if you know
1:24:48it apparently is a group of people who
1:24:49are in the direct sales industry direct
1:24:52sales industry thank you
1:24:54and did
1:24:56lularoe consider joining the dsa no
1:25:03why not
1:25:07no apparent benefit
1:25:11are there costs with
1:25:13joining the dsa don't know
1:25:18have you
1:25:21ever discussed
1:25:22having lularoe join the
1:25:24dsa do not tell me anything that council
1:25:27may have told you but if you have
1:25:28discussed it with council we do need to
1:25:30know that those discussions occurred so
1:25:32he's just asking right now have you
1:25:33discussed yeah
1:25:35our external
1:25:37consultants
1:25:39uh terrell transform service quest to be
1:25:42precise
1:25:43suggested that i joined them and i
1:25:47we had a very brief discussion where i
1:25:49told him i wasn't interested
1:25:54what factors did you consider in coming
1:25:56to that conclusion
1:26:04that
1:26:06that i had no need of them there was
1:26:08absolutely zero reason for me to be
1:26:10participating with the group of people
1:26:12who label themselves as mlm and the
1:26:16direct sales association very much does
1:26:18that
1:26:34if i wanted to buy a piece of
1:26:36lure product uh
1:26:38directly from the company would that be
1:26:40possible no
1:26:43i would have to buy through an
1:26:44independent fashion retailer correct
1:26:46correct
1:26:48are those independent fashion retailers
1:26:50um also called
1:26:53consultants independent fashion
1:26:54consultants or were they at one time at
1:26:56one time they they were when when did
1:26:58the name change from independent fashion
1:27:00consultant to independent fashion
1:27:01retailer i don't know it was a migration
1:27:06and has that always been the case
1:27:08that
1:27:10an individual consumer
1:27:11cannot buy directly from
1:27:14lularoe
1:27:15yes
1:27:17now with one caveat we have operated a
1:27:20supply store
1:27:22that has
1:27:23branded items
1:27:26and people
1:27:28other than ifrs can purchase branded
1:27:31items so
1:27:32coffee cups with lularoe or keychains or
1:27:34hats or things of that nature
1:27:37and how long has that
1:27:40store been around
1:27:42i don't know for a long time is it
1:27:44physical store is it online store online
1:27:49when the
1:27:51name
1:27:53changed from independent fashion
1:27:54consultant to independent fashion retail
1:27:56or
1:27:59did any of the responsibilities
1:28:01change no
1:28:06whose idea was it to change the name
1:28:10i don't know
1:28:14so if i understand it correctly the only
1:28:16way for me to buy
1:28:18a piece of little product would be to
1:28:21become an ifr
1:28:22object
1:28:23no
1:28:24to buy a piece of product directly from
1:28:25the company would be to
1:28:27join
1:28:28and become an ifr is that right that is
1:28:30not correct
1:28:34can i have the question right back to me
1:28:37to buy a piece of product directly from
1:28:39the company would be to join and become
1:28:41an ifr is that right
1:28:47oh i'm okay
1:28:50i'm sorry
1:28:52you did state it correctly i heard it
1:28:53incorrectly yes in order to buy directly
1:28:56from the company you would have to join
1:28:58and be an ifr i'm sorry
1:29:00and if i understand correctly to join as
1:29:02an ifr
1:29:03i would sign an agreement and purchase
1:29:06an initial onboarding package correct
1:29:10how much does that onboarding package
1:29:12cost today
1:29:14499 dollars
1:29:16and how long has it cost 499
1:29:20a couple of months
1:29:22uh before then how much was the
1:29:23onboarding package um i believe it was
1:29:26around twenty five hundred dollars
1:29:29roughly what time period was the
1:29:31onboarding package
1:29:32twenty roughly twenty twenty five
1:29:34hundred dollars um
1:29:39i i don't know when it when it started
1:29:42um but until a couple of months ago and
1:29:45it probably was about a year that it was
1:29:48at 2500 but
1:29:57so 2018 to 2019 time frame probably okay
1:30:03before 2018 to 2019 how much was the
1:30:06onboarding package
1:30:07uh it was
1:30:09five thousand dollars
1:30:11and
1:30:12what time period was it roughly five
1:30:14thousand dollars
1:30:18um
1:30:22probably all of
1:30:242016 2017
1:30:28and again i'm spitballing here guys got
1:30:30it
1:30:31uh before 2016
1:30:34what was the
1:30:36cost of the onboarding package
1:30:39earlier the cost was like 2100
1:30:45and
1:30:46was it 2100
1:30:52from lularoe's inception
1:30:56to roughly 2016.
1:31:00um yeah in lularoe's inception there was
1:31:04no on-board package
1:31:06per se as the company grew and we needed
1:31:09some structure around how things were
1:31:10done then we developed onboard packages
1:31:13okay and when when were on board
1:31:16packages developed
1:31:18i would say
1:31:22probably in 2013
1:31:26[Music]
1:31:282014 and when they were first created
1:31:31they were priced at around 2 000 around
1:31:342 000 i believe
1:31:36who decides
1:31:38uh
1:31:39on how much to price the onboarding
1:31:40package
1:31:44final decision me
1:31:47before the decision gets to you who who
1:31:50comes up with uh potential changes
1:31:52input mostly from sales and marketing um
1:31:56and
1:31:59yeah i would say mostly sales and
1:32:01marketing a little bit out of finance
1:32:11so let's use this
1:32:13most recent change
1:32:15from 2500 to roughly 4.99 uh
1:32:19was that a recommendation that sales and
1:32:20marketing brought to you or did you
1:32:22decide
1:32:23i think we should change sales and
1:32:25marketing tell me what you think it
1:32:26should be
1:32:28actually the the latest one
1:32:31was
1:32:32a decision made by me
1:32:37brought it up in an executive meeting to
1:32:39make sure that everybody
1:32:40that we were all in accord with it but
1:32:44that that entire process was driven by
1:32:46me
1:32:47and what prompted you to drive that
1:32:49process
1:32:51recognition that our model was changing
1:32:54that
1:32:55when when the model started people
1:32:57actually did
1:32:58events where they went into someone's
1:33:00home
1:33:01or to a vendor event at a fair or a
1:33:05street fair or something of that nature
1:33:07and in order to present well in that
1:33:09environment they needed enough clothing
1:33:11on the racks to look like they had an
1:33:13offering to the public
1:33:14as our as our offering has migrated more
1:33:17towards
1:33:18online sales and album sales
1:33:22somebody looking at your offering
1:33:26you don't need the bulk of the same
1:33:28amount of clothing to make it look like
1:33:30you have a presence
1:33:32you know and so
1:33:33recognizing that it was no longer needed
1:33:36to drive that successful business
1:33:38behavior we we came up with a program to
1:33:40allow more people to get
1:33:43to be able to get into the business
1:33:45you mentioned a term uh album sales what
1:33:48is an album sale
1:33:49it's similar to an online sale uh or to
1:33:52a to a web page
1:33:54um and they they have albums they call
1:33:57them albums of the product that they
1:33:58have and so they have a landing page a
1:34:00landing web page and then access to
1:34:02their product on the album
1:34:05under understand and so that web page is
1:34:08affiliated with the ifr doing the sale
1:34:11yes
1:34:13and it has their specific product on it
1:34:21uh for some of the other
1:34:24for the other
1:34:26changes to the onboarding packages
1:34:29twenty one hundred to five thousand five
1:34:30thousand
1:34:32down to two thousand five hundred who
1:34:35who drove those changes
1:34:38again mostly me
1:34:40in those things again with council and
1:34:43you know talking to other executives but
1:34:46mostly me
1:35:03turning specifically to when the price
1:35:05increased
1:35:07roughly 2016
1:35:09from
1:35:102100 to 5000 what what prompted you to
1:35:15drive that change
1:35:16expanded product line uh you know when
1:35:19we started we had one
1:35:21excuse me we had one product we had a
1:35:23maxi skirt
1:35:24and uh
1:35:26and so buying a hundred skirts was
1:35:29enough to have some kind of presence as
1:35:31the company grew and we had multiple
1:35:33offerings what we found were people
1:35:35would have multiple styles but they
1:35:37wouldn't have adequate sizes or
1:35:39representation across the styles and so
1:35:42in order to have
1:35:43an effective product mix
1:35:45we felt like it would
1:35:48it would work better for them they would
1:35:49have a better chance of being successful
1:35:51if they had a broader product
1:35:56okay um
1:35:58i alluded earlier to the fact that i'm
1:36:00fairly fashion ignorant so excuse some
1:36:02of these questions
1:36:03what is the difference between a product
1:36:05and a style
1:36:09um
1:36:10i i guess a product refers to any piece
1:36:12of clothing and a style would refer to
1:36:16uh for instance a top or a
1:36:19dress or a skirt or
1:36:21you know a particular silhouette of a of
1:36:24a style of clothing
1:36:26okay so i've seen
1:36:28names like the maxi the nicole do those
1:36:30refer to styles those would be styles
1:36:32correct
1:36:35and so for example the maxi is a
1:36:37style of
1:36:38dress right yeah so so when i say that
1:36:41the product line expanded product line
1:36:44expands with more styles in it if that
1:36:47makes sense
1:36:49would a product line be like tops for
1:36:51example no it'd be everything
1:36:56and um
1:36:58so if i'm in a style say the maxi
1:37:01there are different sizes right right
1:37:03okay
1:37:04and then are there different there's
1:37:06different patterns yes
1:37:08okay
1:37:10and there's also something called print
1:37:12is that right the print and pattern
1:37:13would be the same patterns and prints
1:37:15are the same thing yes
1:37:20so
1:37:21when i receive an onboarding package
1:37:26let's
1:37:28say
1:37:29imagine it's 2017
1:37:32after the expanded product lines
1:37:37do i choose different styles that i get
1:37:39in the onboarding package
1:37:42so there were there were different times
1:37:43when we experimented with different
1:37:45things
1:37:46uh
1:37:49at some points you could choose at some
1:37:52points there were predetermined
1:37:54packages
1:37:57some of those were in response to
1:38:03to our manufacturing process is what i
1:38:05knew we had available you know so in
1:38:08order in order to get you size runs
1:38:10across the entire body
1:38:12uh
1:38:13we we would narrow it down to products
1:38:15that we knew we had those size runs
1:38:17across the bodies
1:38:20so in other words if i have mediums in
1:38:22something i didn't want you starting out
1:38:24your business and buying a product and
1:38:26then not having a size medium that's not
1:38:28going to help you
1:38:38when
1:38:44what were the time frames in which
1:38:46the onboarding packages were
1:38:48predetermined
1:38:52i i don't know
1:38:55and when you say predetermined
1:38:57would i have
1:38:58if i were to be signing up
1:39:00in that time period
1:39:02what would i be able to choose if
1:39:03anything
1:39:06you would be able to choose
1:39:08a style
1:39:10and then we would make sure that there
1:39:12was a size run inside of that style a
1:39:15predetermined size right there okay so i
1:39:17would choose a style say the maxi or the
1:39:19nicole
1:39:20and then
1:39:21sizes patterns would be determined by
1:39:24little lularoe
1:39:25yes okay
1:39:28and so
1:39:30you know in this era around 2016 with
1:39:32the expanded product
1:39:34offerings
1:39:35driving the need for ifrs to have wider
1:39:38offerings
1:39:40was another consideration for raising
1:39:42the
1:39:43onboarding price
1:39:45just the demand for people wanting to
1:39:47join lularoe
1:39:49no
1:39:57has lularoe ever
1:40:01taken action in response to
1:40:04increased demand to onboard
1:40:08yes and what action has it taken
1:40:11we limited the number of retailers that
1:40:14could onboard and created a queue
1:40:17which actually served a couple of
1:40:19purposes one it slowed down the the
1:40:22incoming retailers but second it gave
1:40:24people a
1:40:26an opportunity to really analyze what
1:40:28the business was and whether they it
1:40:30gave them that that moment to think
1:40:32about what they were going to do and
1:40:35whether you know how they were going to
1:40:36be involved and the commitment they were
1:40:38making to
1:40:39to build a business
1:40:43and was that in the
1:40:452016-2017 time period
1:40:48um
1:40:49definitely in 17 i'm not sure if we'd
1:40:52implemented it yet in 16.
1:40:55and um
1:40:57so it sounds like onboarding was capped
1:40:59during that time is that fair yes what
1:41:01was it capped at
1:41:03um
1:41:04i believe that it was 500 a day
1:41:12so is it fair to say that in laura's
1:41:14history 500 day is sort of the max that
1:41:16is onboarded it on
1:41:17one time
1:41:20maybe a brief period before we put the
1:41:22cap in place that required us to put the
1:41:25cap in place
1:41:27and is the limitation
1:41:29uh
1:41:35withdrawn
1:41:36what are the limitations that
1:41:39led to implementing the cap
1:41:42i assume there's a reason why you
1:41:44couldn't just onboard as many people as
1:41:46wanted to be onboarded so what were some
1:41:47of the reasons that led to needing to
1:41:49cap the number of onboards
1:41:53management of
1:41:55of
1:41:56resources all of them
1:41:58i mean management of those new people
1:42:00training for those people
1:42:02uh
1:42:04product fulfillment
1:42:06uh
1:42:07both supply chain and
1:42:09forward facing
1:42:10uh just
1:42:12a there were multiple considerations
1:42:19so you mentioned supply chain
1:42:23were you referring to the fact that
1:42:26you need product to give to these people
1:42:27that they onboard yes and it was
1:42:29difficult to
1:42:31produce that much product in such a
1:42:33quick time frame correct
1:42:35it was there were challenges in
1:42:37anticipating that kind of growth
1:42:40and you said supply chain and also
1:42:42forward-facing yes what did you mean
1:42:44when you said forward-facing i mean
1:42:46fulfilling their orders
1:42:47so even if i you know
1:42:50you have the product you still got to
1:42:51ship it to them
1:43:03so
1:43:18so
1:43:19we talked about
1:43:21the fact that at
1:43:24during some time periods
1:43:26people who on board
1:43:28don't have the ability to choose
1:43:33patterns and sizes
1:43:36was that ever the case for
1:43:38already existing ifrs
1:43:42um no the existing ifrs well that's a
1:43:46compound question
1:43:48so
1:43:49patterns
1:43:51yes
1:43:53or excuse me styles yes patterns no
1:43:57so there were times where
1:44:00uh
1:44:02if existing isrs couldn't choose styles
1:44:07no they they could assuming they were
1:44:09available okay
1:44:14could was there a time where they
1:44:16couldn't choose the sizes
1:44:19only based on availability
1:44:22what about patterns
1:44:23no they cannot choose patterns
1:44:26uh so
1:44:28have they have ifrs ever been able to
1:44:29choose patterns no
1:44:40and if i'm an existing ifr
1:44:43trying to place an order
1:44:47will the system prevent me from
1:44:49choosing a style that's not available
1:44:52yes
1:44:53but excuse me before i
1:44:56define not available
1:44:58not available in sight if it's not there
1:45:00to ship yes it will prevent you from
1:45:02from ordering it okay
1:45:07has that always been the case no
1:45:13and has that led to
1:45:15issues with back orders
1:45:19if
1:45:20if you're asking have there been back
1:45:22orders absolutely
1:45:27what happens when there's
1:45:29back a back
1:45:29form
1:45:32there's
1:45:33multiple solutions that either gets
1:45:35filled at a later date or there's a
1:45:37credit issued
1:45:43and
1:45:44uh
1:45:45have there been times in lularoe's
1:45:48history where uh
1:45:51there were an unusually high number of
1:45:53back orders
1:45:58would say yes
1:45:59when was that time frame
1:46:01uh
1:46:03probably
1:46:08august through september of
1:46:122016
1:46:16maybe earlier than that
1:46:18so similar time periods when the queue
1:46:20was put in place
1:46:24probably yeah possibly again you're
1:46:27asking me time frames from four or five
1:46:28years ago i'm so i'm
1:46:30i'm making some guesses yeah i'm just
1:46:33going to object as miss states as prior
1:46:34testimony
1:46:36so charlie said 17
1:46:38okay
1:46:39turning back to the queue um
1:46:44whose idea was it to
1:46:46you know cap on boards and create the
1:46:48queue mine
1:46:50who else was involved in that
1:46:52decision if anyone
1:46:54um again probably uh
1:46:58marketing and sales teams
1:47:01production team
1:47:04i'm sure dianne
1:47:06finance
1:47:08everybody
1:47:09this was a major decision for us
1:47:11uh was there a particular group in
1:47:13charge of
1:47:14implementing the queue
1:47:18um
1:47:22you know i i know that we spun up people
1:47:25to manage the queue i don't remember the
1:47:27exact structure of how that was done
1:47:30and uh what was involved in managing the
1:47:32hue
1:47:34just
1:47:35communications
1:47:37mostly
1:47:38uh and then the actual administration of
1:47:41where are you what's your time frame
1:47:42when
1:47:43when are you
1:47:45you know
1:47:46who's next who's in line who what does
1:47:48this cue look like when you say
1:47:50communications do you mean lularoe
1:47:52communicating with the people in the
1:47:53queue yes okay what um
1:47:56other than administrative like where are
1:47:58you in line
1:47:59what's expected way things like that
1:48:00what what types of communications
1:48:02occurred between lularoe and the queue i
1:48:05don't know
1:48:07you mentioned
1:48:09that
1:48:10sort of a side benefit or a benefit of
1:48:11the queue is that that allowed
1:48:13potential people to evaluate
1:48:16you know this opportunity what
1:48:18um
1:48:21what resources
1:48:23would you make available to people in
1:48:25the queue to evaluate the opportunity
1:48:32um
1:48:33in in what time frame
1:48:36well let's start when the queue first
1:48:39was implemented
1:48:40so probably when it was first
1:48:42implemented not much
1:48:44today there's a complete training
1:48:46process that they go through while
1:48:47they're in the queue and by the way
1:48:49we're not on boarding 500 a day anymore
1:48:51but we still have an onboard
1:48:53time frame and process that they have to
1:48:56go through to that talks about the
1:48:58business talks about
1:49:00their responsibilities
1:49:02there's there's trainings available to
1:49:04them there's a complete process now
1:49:11so the queue
1:49:12is still
1:49:13in existence
1:49:14yes
1:49:16and
1:49:17uh how long is
1:49:19the q period now
1:49:23it's not a time frame any longer it is a
1:49:27training process and acknowledgement
1:49:29that you've received that training
1:49:31and it can be done in as little i think
1:49:33the
1:49:34they're doing it in as little as a week
1:49:37generally a one to two week process
1:49:40and is that
1:49:41is that training put on by
1:49:43lularoe yes
1:49:45who does that training now
1:49:48um i believe that it is mostly online
1:49:52is that training i've heard of things
1:49:54called the cue call is that is that what
1:49:55the training is called
1:49:58um
1:50:00there's
1:50:00there's more beyond that i'm not sure
1:50:02what the cue call is okay
1:50:04um
1:50:06what what is let me back up then uh so
1:50:09what what is the formalized training
1:50:10what does it look like
1:50:12i i don't know
1:50:14are they
1:50:15are they live
1:50:16i don't know
1:50:17okay uh
1:50:18who who knows
1:50:25um
1:50:28were jordan brady now
1:50:31jordan might
1:50:33kenny might
1:50:36i'm not sure where that
1:50:39direct responsibility lies
1:50:44and
1:50:46other than the training
1:50:51for those in the queue
1:50:53um
1:50:55are there other
1:50:56resources made available
1:50:58to potential ifrs
1:51:01when they're
1:51:02in the hue
1:51:04same objection
1:51:06um
1:51:08i i think the training encompasses
1:51:10everything that's available to them
1:51:13they're they're what
1:51:16i mean
1:51:17if it's if we've made it available to
1:51:19them it isn't part of that process so
1:51:26so lularoe has a website it's publicly
1:51:28available are there are people in the
1:51:31queue given access to
1:51:33internal sites at lularoe while they're
1:51:35in the queue things of that nature
1:51:37i don't know
1:51:44for onboarding packages
1:51:48have
1:51:51there been times where
1:51:54non-clothing items were
1:51:56included with the package
1:51:59at one point we had a starter kit that
1:52:02had some
1:52:03uh calendar and um
1:52:05some marketing aids and so forth
1:52:09um
1:52:10what
1:52:12when you say calendar
1:52:14like a day planner
1:52:18what did you mean we said marketing aids
1:52:20um
1:52:22you know what i'm not
1:52:23really familiar with what all was in it
1:52:25but it seems like there was uh you know
1:52:26maybe some
1:52:28little
1:52:28size hangers and uh
1:52:31i don't know
1:52:33there was some stuff in it
1:52:35makes you feel like you got something to
1:52:36start your business
1:52:38and uh when were these starter kits
1:52:41included
1:52:44um quite honestly i'm not sure if
1:52:46they're still included or not
1:52:48[Music]
1:52:49and
1:52:51i know through 16 and 17
1:52:53they definitely were
1:52:56outside of that i'm not sure when we
1:52:57published the first ones
1:52:59uh probably in 15 but
1:53:05uh you use the term
1:53:07published well we had to send them out
1:53:10to a printer they had to be put together
1:53:11but you know they were created i guess
1:53:19do you know who was involved in
1:53:22putting together these starter kits yeah
1:53:23probably marketing probably just in line
1:53:39so i'm going to test your memory a
1:53:40little bit more bear with me in the
1:53:42early years 2014 2015
1:53:46on average how many
1:53:48ifrs were onboarded
1:53:49either monthly or yearly
1:53:53so from the day we started the business
1:53:57we averaged 25 growth month over month
1:54:01and so when you talk about a year time
1:54:03frame it's wildly different
1:54:10uh so that 25
1:54:12growth month over month refers to the
1:54:13number of people being onboarded
1:54:15referred to
1:54:16to wholesale sales
1:54:20and i wasn't tracking on boards as
1:54:22closely as i was tracking
1:54:24wholesale sales
1:54:36at the height of the q club
1:54:40uh what if you know was the longest
1:54:43wait time for someone trying to onboard
1:54:45um
1:54:48and by the way i never referred to it as
1:54:50the q club that was uh something that
1:54:52the
1:54:53the ifrs
1:54:55began to refer to it as and those that
1:54:56were in it
1:54:58um
1:54:59i i believe we were probably
1:55:01at least six weeks
1:55:03possibly longer but
1:55:23so i have seen
1:55:25complaints from ifr's about
1:55:28back order slips not getting what they
1:55:30want
1:55:32did anyone ever ask you
1:55:35why lularoe continued to onboard
1:55:39when there were still back order slips
1:55:41being sent out jack to the form
1:55:49did anyone ask me
1:55:52not that i
1:55:58recall was the
1:56:09did you ever slow down the number of
1:56:11people you're on boarding
1:56:13because of the number of back order
1:56:14slips that were going on
1:56:18not specifically back order slips but
1:56:20yes
1:56:22relative to fulfillment that was one of
1:56:24the considerations
1:56:25okay
1:56:27so it's fair to say that
1:56:31at some point someone was concerned
1:56:32about lularoe's ability to
1:56:35fully complete orders i believe that
1:56:37someone was me
1:56:40and when was this when were you
1:56:41concerned about this again i think i
1:56:43already said that we're talking about
1:56:45late in uh 15
1:56:48most likely
1:56:52or i'm sorry laden 16.
1:56:57or you know what stop
1:57:00i don't know it was a while ago i
1:57:02understand
1:57:15so you mentioned that in response to
1:57:18a product being unavailable someone
1:57:19might get a back order slip or also
1:57:21credit can you explain what the credit
1:57:23process worked what the credit how the
1:57:25credit process worked
1:57:28technically how it worked i don't know
1:57:30but if you ordered something and we were
1:57:32unable to fulfill it we would simply
1:57:35give you
1:57:36a credit
1:57:39in the back office to buy something else
1:57:42or if you chose a refund to your credit
1:57:45card
1:57:47so you had an ifr had the ability to
1:57:49choose a refund
1:57:50yes
1:57:52and the credit uh
1:57:55you know if you were to use that credit
1:57:58could you use it just to purchase the
1:58:00number of
1:58:01items that needed to be completed
1:58:05did you reread that please
1:58:08and the credit if you were to use that
1:58:10credit could you use it just to purchase
1:58:12the number of items that needed to be
1:58:14completed
1:58:17um no if you chose the credit then uh it
1:58:21just went on your account and you could
1:58:23use it in your next purchase
1:58:26but if that amount were
1:58:28lower than the amount necessary to
1:58:31make a minimum
1:58:32purchase order
1:58:34i would have to pay more correct correct
1:58:48so i believe you you mentioned that the
1:58:50starter kit and the marketing material
1:58:51the best person to talk to would be just
1:58:53in line here if i recall critical he's
1:58:55no longer
1:58:56uh
1:58:57employed by the was that right no he's
1:58:58still still okay um and he is he is one
1:59:02of the people that reports directly to
1:59:03you
1:59:04no okay who does he report to he reports
1:59:06to lauren simpson right um
1:59:10before lauren simpson who did you report
1:59:11to
1:59:12before that he reported to me
1:59:18or deanne
1:59:23and so any of the marketing material he
1:59:25put together he'd have to run by
1:59:27eurodian is that right yes
1:59:42so i know that ifrs are classified as
1:59:46retailers sponsors trainers coaches or
1:59:49mentors correct correct
1:59:52are those terms
1:59:55referred to as rank or tiers like what
1:59:57what do those various
1:59:59terms
2:00:00how are they referred to in terms of
2:00:02categorization
2:00:05i would say
2:00:07i would say rank
2:00:12and have there been any other ranks
2:00:15other than retailer sponsor trainer
2:00:18coach or mentor
2:00:21i don't believe so
2:00:26and when did
2:00:29these ranks
2:00:33when were these ranks implemented
2:00:40um
2:00:43probably uh
2:00:46early 2014
2:00:52whose idea was it to have these ranks
2:00:55mine
2:00:57where did you get the idea
2:01:00um
2:01:02so as the company was growing uh
2:01:05we we needed mid-level management
2:01:09and
2:01:09we
2:01:10we
2:01:12discussed options of what that might
2:01:13look like we discussed
2:01:15bringing in regional sales managers and
2:01:18things of that nature
2:01:20and we realized that our model was
2:01:22unique and that it would be hard to hire
2:01:26external experts that would understand
2:01:28how our model worked and decided that
2:01:31the best place to find our management
2:01:33would be within the ranks of our own
2:01:35retailers
2:01:37and so
2:01:39we actually
2:01:40spoke to an outside firm
2:01:42that told me that there were five
2:01:45critical elements to a network marketing
2:01:47plan
2:01:48so i'm not part of the dsa
2:01:50they said sales
2:01:53management
2:01:55leadership
2:01:57recruiting and retention
2:02:00and that if i wanted to have a
2:02:01successful plan i had to build in
2:02:03something for each one of those
2:02:05i believe that if i have strong sales
2:02:08management and leadership
2:02:11recruiting and retention should take
2:02:13care of themselves
2:02:14if i have a business that works people
2:02:17will be drawn to it the right people
2:02:19will come to it there should be no
2:02:20artificial
2:02:22bonuses for recruiting in any way shape
2:02:24or form and retention same thing if
2:02:27you're running a business and making
2:02:28money you're going to stay
2:02:30and out of the beginning of the company
2:02:32we still have a huge retention rate
2:02:36people that were here when when
2:02:39when it was hands-on and smaller
2:02:42and who understood what we were doing
2:02:44are still here
2:02:46as the company grew
2:02:48some of that got diluted a little bit
2:02:51but we focus on that that comp plan
2:02:53focuses on sales on management and on
2:02:56leadership
2:02:58and the reason that we call them the
2:03:00names that we did is because those
2:03:02titles reflect behavior
2:03:04and requirements
2:03:06not
2:03:07achievement levels
2:03:09but stewardship and responsibility that
2:03:12comes with leadership so
2:03:15you know
2:03:16oftentimes you'll see oh you're a ruby
2:03:19and a sapphire and a diamond or you're a
2:03:22bronze and a silver and a gold and a
2:03:24platinum
2:03:25we chose
2:03:26trainer coach and mentor because that
2:03:29has a meaning to it
2:03:31and when you're at that level
2:03:33you know if you think of an athletic
2:03:34trainer
2:03:36he's the guy that's in the gym telling
2:03:37you to lift lift one more time go one
2:03:40more rep he's right in the grassroots
2:03:42with you just helping you do the work
2:03:44the coach is off the field
2:03:46but he's giving you strategy and just
2:03:48kind of throwing the play into you and a
2:03:50mentor is somebody that you might only
2:03:52talk to once or twice a year
2:03:54but you look to them when when you've
2:03:55exhausted other opportunities and so
2:03:58that's where that structure came from
2:04:01uh and before i lose my train of thought
2:04:02uh you mentioned a consultant
2:04:05prior to the five factors was that
2:04:06service quest
2:04:09um service quest brought another
2:04:11consultant to us and i don't remember
2:04:12who they got it okay um
2:04:17and
2:04:19so
2:04:20within these
2:04:22ranks is there a further different
2:04:24differentiation i like the numerical
2:04:26rank that's a little bit more granular
2:04:29no okay
2:04:32what does it mean if a mentor or a coach
2:04:35has a
2:04:36a paid rank i've seen references to paid
2:04:39rank and high rank
2:04:41so when they achieve that rank
2:04:43we
2:04:45they they get the title they get to call
2:04:48themselves that
2:04:49but our compensation plan runs every
2:04:51month based on performance that specific
2:04:54month so if you're
2:04:56if you're qualified as a mentor that
2:04:59month you get paid as a mentor if you
2:05:01qualify as a coach you get paid as a
2:05:02coach so your paid rank would be
2:05:05different maybe than your title rank
2:05:07so i have mentors who
2:05:10you know achieved that rank but don't
2:05:13achieve it every month and so or coaches
2:05:15that have achieved that rank and don't
2:05:17achieve it every month
2:05:18so if i've ever been a mentor i can call
2:05:21myself a mentor but if i happen to
2:05:23have a slow month or something i might
2:05:25not be paid as a mentor yeah they still
2:05:26get invited to leadership meetings and
2:05:28things of that nature but you're just
2:05:30not going to get paid
2:05:34at that rank i should say you will get
2:05:36paid probably
2:05:40um
2:05:42i had one other thought but
2:05:43earlier we're talking about
2:05:45credit and refunds uh
2:05:48has that refund option for back order
2:05:50slips
2:05:52always been available to ifrs
2:05:55um i believe so
2:05:57is it
2:05:59summarized in a written policy anywhere
2:06:02i i don't know
2:06:10can you explain the term
2:06:12downline
2:06:15yeah um
2:06:17again not a term that i'm very fond of
2:06:20but it refers to those people that have
2:06:23uh that have been recruited by you or by
2:06:25someone in your organization
2:06:28and for which as a leader you would have
2:06:30responsibility for helping to train and
2:06:33and give them the guidance
2:06:36and uh
2:06:37is there a term you do prefer
2:06:40i prefer your organization
2:06:43i have seen the acronym team t period e
2:06:46period a period m is that another way
2:06:48referring to someone's down line no okay
2:06:50what does that refer to
2:06:52team in our organization refers to the
2:06:54acronym is together everyone achieves
2:06:57more
2:06:58and whenever we write the word team we
2:07:00use that acronym just to remind us that
2:07:03we're working together
2:07:12so
2:07:15if i'm a retailer i have someone who
2:07:17sponsored me brought me in
2:07:18what happens if my sponsor leaves
2:07:24if you need help there's whoever
2:07:26sponsored your sponsor is there for you
2:07:30there's a
2:07:31if you can imagine a genealogy tree and
2:07:34so there's always someone above that has
2:07:36that responsibility
2:07:39so am i then automatically slotted into
2:07:41my sponsor sponsor
2:07:43do i have any choice into who my sponsor
2:07:45could be no
2:07:47you're automatically uh
2:07:50to to clarify your sponsors not that
2:07:53nearly as important to your business as
2:07:56you are
2:07:57and there are resources all the way to
2:07:59the company
2:08:01so
2:08:01who your sponsor is or who who else is
2:08:04above them
2:08:06uh isn't as uh
2:08:09isn't as critically relevant as what
2:08:12you're going to do in your business
2:08:14because those resources are there we in
2:08:17the compensation plan we actually have a
2:08:19leadership bonus pool
2:08:21and it's there specifically to address
2:08:23that issue
2:08:25where
2:08:26anybody that's in leadership will gladly
2:08:28help any retailer in the business
2:08:34and if my sponsor leaves
2:08:37or if any ifr leaves
2:08:39um
2:08:42what type of paperwork do they have to
2:08:45uh
2:08:47sign or
2:08:48agree to
2:08:49if any
2:08:50um i'm not
2:08:52i'm not sure what the actual exit
2:08:54process is okay
2:08:56uh i assume that's someone in hr
2:08:58actually
2:08:58um who who
2:09:00who would be responsible for that
2:09:03um
2:09:05i know there is there is a team that
2:09:07handles that
2:09:08handles return processes and and and
2:09:11things uh
2:09:12i'm not sure
2:09:14uh if they're in the warehouse or if
2:09:15they're under compliance or i'm
2:09:18not sure
2:09:20uh are you aware of
2:09:23any prohibition on
2:09:24exiting sponsors sorry exiting retailers
2:09:27using the cancellation or refund
2:09:28policies
2:09:30no so if uh
2:09:33an ifr leaves
2:09:35or
2:09:36stops being enough r they can still
2:09:38submit
2:09:39a qualifying
2:09:41products to return
2:09:43yes and damage products to return yes
2:09:47has that always been the case yes
2:09:57subject to
2:09:58the policies and procedures
2:10:01if somebody leaves for two years and
2:10:02then wants to send something back
2:10:04that would be a no
2:10:13we'll talk in more detail about bonuses
2:10:15later i had a
2:10:17question about how
2:10:19departing
2:10:20leaders impacts bonuses
2:10:24as a whole
2:10:26thank you if a leader
2:10:29leaves
2:10:32does the amount
2:10:33louvre pays out and bonuses collectively
2:10:37change
2:10:40now maybe
2:10:43but but it can change
2:10:45in
2:10:46it can change in two directions
2:10:48it's not relative to we pay less
2:10:51but when somebody's removed from the
2:10:52team tree it changes qualifications and
2:10:55and all kinds of things can be affected
2:10:57by that
2:10:58and the total amount lulu pays out in
2:11:01bonuses for that month it could go up or
2:11:03it could go down correct
2:11:07so it's about 12 20. how are you doing
2:11:10i'm fine
2:11:13maybe we head for 12 30 and then take
2:11:15lunch
2:11:16sure uh i'm
2:11:18almost at a good stopping point so that
2:11:19makes sense
2:11:24i'll take it off this time
2:11:31going back on the record the time is 1
2:11:3332 pm
2:11:36welcome back mr student thank you
2:11:38i'd like to start the afternoon by
2:11:40talking a little bit about the
2:11:42president's council
2:11:43what is the president's council
2:11:47um
2:11:48as relates to lularoe
2:11:50one
2:11:51point in time there was a group of
2:11:53people who
2:11:55represented the
2:11:57ifrs
2:12:00they were
2:12:01[Music]
2:12:04kind of our liaison with
2:12:07the field
2:12:10and it's my understanding that these
2:12:11were higher level uh
2:12:14folks in the ifr ranks were they all
2:12:17mentors i don't know okay
2:12:20when was the president's council
2:12:23in existence
2:12:27um
2:12:28again not sure
2:12:32it was for a period of time
2:12:35don't remember if it was for
2:12:37two years or three different years um
2:12:42uh but it's no longer in place now no
2:12:45and
2:12:46how big was it
2:12:50i i believe there were
2:12:52maybe eight to ten people on the council
2:12:58and you described their role as a
2:13:00liaison
2:13:01for the ifrs interacting with folks at
2:13:03lularoe
2:13:05who
2:13:06who at lularoe do they interact with
2:13:10mostly with
2:13:12sales and marketing departments
2:13:17did they receive any
2:13:20compensation or benefit from being a
2:13:22part of the president's council
2:13:25which one
2:13:26any of the
2:13:28members of the president's council no
2:13:30compensation or benefit
2:13:32uh let's start with compensation no
2:13:35uh and then benefits
2:13:36benefits they were
2:13:38they were allowed to go on some
2:13:41trips that
2:13:43kind of combination of a
2:13:45of a trip
2:13:47to a nice destination to have a council
2:13:49meeting
2:13:51where
2:13:53where were some of these trips to
2:13:55las vegas i specifically remember salt
2:13:57lake city
2:14:02did they
2:14:06meet outside of these sort of in-person
2:14:08trips i don't know
2:14:24sending you a
2:14:26document which will be
2:14:28marked as exhibit 43.
2:14:32oh i can thank you
2:14:51so this document exhibit 43
2:14:55bates numbered llr-w-a-00024569
2:15:02it's
2:15:03titled
2:15:04lularoe president's council web meeting
2:15:06september 4th 2014.
2:15:10do you recognize this type of document
2:15:15yes
2:15:16and is it
2:15:19what is it
2:15:23and it appears to be the minutes of
2:15:26the agenda an agenda for
2:15:29uh
2:15:31that meeting and
2:15:33uh some minutes
2:15:36so this would have been prepared
2:15:38after after the meeting
2:15:40checked on lack of foundation
2:15:46i believe that the part
2:15:48in red
2:15:49are things that were discussed at that
2:15:51meeting
2:15:53got it and whether terrell was
2:15:56tasked with it or what that even
2:16:00what that even means
2:16:02uh well so mr
2:16:05terrell transtrom
2:16:06he worked for service quest right
2:16:09yes he owned service questions own
2:16:11service quest and service quest was a
2:16:13vendor for lularoe a consultant
2:16:18work did service quest do with respect
2:16:20to compensation plans
2:16:28again i could not identify specifics
2:16:32terrell
2:16:33terrell at that time was involved in a
2:16:35lot of things
2:16:39mostly
2:16:41as a sounding board and giving again as
2:16:44an external consultant giving opinions
2:16:49so i'm not sure what
2:16:51specific things he may have done there
2:16:55and if you turn to the front page
2:16:58it indicates that this was a web meeting
2:17:00at the very top
2:17:04okay
2:17:06did in addition to
2:17:08the
2:17:09types of trips to vegas salt lake city
2:17:11did the president's council
2:17:13meet via web conference
2:17:20i'm going to say
2:17:21based on this
2:17:24meeting titled web meeting that
2:17:28it appears that we did
2:17:30do you recall participating in any
2:17:31presidential council's meetings
2:17:33via
2:17:34computer or web
2:17:36i have no recollection
2:17:55are there other
2:17:59councils
2:18:00uh
2:18:01like the president's council
2:18:05or have there been other councils like
2:18:06the president's council
2:18:09check the form
2:18:11um and there was the same council the
2:18:14same
2:18:15set up with the same purposes that at
2:18:17one point was referred to as the
2:18:18ambassador council
2:18:20but it's just a difference in in name
2:18:23so originally the president's council
2:18:25was called ambassadors council is that
2:18:27there
2:18:29either originally it was called
2:18:30presidents and then called the
2:18:31ambassador originally ambassador and
2:18:33then presidents i'm not sure
2:18:34when and where
2:18:36and when you said the president's
2:18:37council uh
2:18:39was in existence for a few years would
2:18:40that have included the time that it was
2:18:42called the ambassador's council yes
2:18:45is there something called the the art
2:18:47council or a council that deals with
2:18:49artwork
2:18:50no
2:18:51has there ever been not to my knowledge
2:18:54has there ever been a group of ifrs that
2:18:56advise us to artwork
2:18:59or design
2:19:02in
2:19:07in an advisory
2:19:09informal capacity yes
2:19:13and when was that
2:19:14i don't know
2:19:16throughout time
2:19:18as we created artwork we got feedback
2:19:19from ifrs and what they liked what they
2:19:21didn't like what they thought we should
2:19:23do more of
2:19:24so yes there has been but not as again
2:19:27not as a council
2:19:29so there's no group that's presented to
2:19:31you it's just informally what do
2:19:34whoever ifr you have to be interacting
2:19:35with what they think of particular art
2:19:37yes
2:19:45in august of 2016
2:19:49was there a meeting
2:19:52that was generally referred to the state
2:19:54of the union meeting or state of
2:19:56the company
2:19:58would have occurred in arizona
2:20:01yes
2:20:05did you attend that meeting yes
2:20:08do you recall
2:20:10is my general time frame of august 2016
2:20:12correct
2:20:13i have no recollection of the time frame
2:20:16uh
2:20:17what was discussed at this meeting
2:20:21i have no recollection of what was
2:20:23discussed at that meeting uh do you
2:20:25recall who was invited to the meeting
2:20:30i believe that it was a leadership
2:20:32meeting but as to exactly
2:20:34what the qualifications were and who was
2:20:36invited i don't know
2:20:37and what do you mean when you say
2:20:38leadership meeting i mean it would have
2:20:40been it would have probably been mentors
2:20:43and possibly coaches maybe some
2:20:46high-income earners i'm not sure
2:21:00do you recall
2:21:01presenting or speaking
2:21:03to the attendees of that meeting
2:21:06i do
2:21:08what did you talk about i don't know
2:21:11in preparation for
2:21:13um
2:21:15then this meeting
2:21:17did you prepare notes about what you're
2:21:19going to present
2:21:25i don't have a specific recollection
2:21:28did you have a powerpoint with you when
2:21:30you presented to the i don't recall
2:21:37so earlier we talked about how
2:21:39you would analyze
2:21:41data or trends do you recall
2:21:44discussing at this meeting
2:21:46any concerns regarding the
2:21:48consignment plan or the numbers
2:21:51relating to consignment sales
2:21:55i don't recall
2:21:59who
2:22:01decided to hold the meeting
2:22:05again i don't recall
2:22:07i've had hundreds of meetings in the
2:22:09last
2:22:11six years around lularoe so
2:22:13i i don't recall
2:22:16so would
2:22:18this state of union the union meeting
2:22:21would be that would that be a recurring
2:22:22meeting frequent meeting
2:22:24i don't believe so
2:22:26so what is it was it one it was a
2:22:27one-time meeting you think
2:22:30again i don't recall we may have had
2:22:33other meetings that were referred to in
2:22:34that way but i don't recall
2:22:39and did you did lularoe pay for the
2:22:42mentors coaches and other high earners
2:22:44to attend this meeting
2:22:45i have no idea
2:22:49who other than yourself and deanne had
2:22:52the authority to
2:22:53call a meeting involving mentors and
2:22:56coaches
2:22:57check to the forum
2:23:01ultimately to actually call the meeting
2:23:04would be either deanna right
2:23:13do you recall a meeting similar to
2:23:15the arizona state of union meeting
2:23:18occurring in salt lake city
2:23:23i do not
2:23:28a moment ago you
2:23:30described
2:23:32the numerous meetings that in your role
2:23:34as you have to attend
2:23:35uh how many of those require travel
2:23:38how often do you travel to meetings for
2:23:40for work
2:23:45often
2:23:48so how many times say within the past
2:23:49year have you left california for a
2:23:51lularoe related meeting
2:23:58i don't know about
2:24:00probably
2:24:03probably
2:24:04six to eight times
2:24:06maybe more
2:24:08and of these how many were meetings with
2:24:10uh ifrs
2:24:13most of them
2:24:16when was the last one
2:24:20uh
2:24:23two weeks ago
2:24:25who who did you meet with ifrs which
2:24:28which ones the ones that came to the
2:24:30meeting it was an open meeting
2:24:32of ours and where was it it was in south
2:24:34carolina
2:24:36what was the agenda for this meeting
2:24:39i don't know
2:24:49in that
2:24:50estimate of roughly six
2:24:53of meetings that require travel does
2:24:54that require does that include
2:24:58a conference called leadership
2:25:02yes
2:25:03does what is leadership
2:25:09in the context of meetings
2:25:12um
2:25:14we
2:25:15it's it's a regularly occurring training
2:25:18where
2:25:20again people that have achieved
2:25:23a rank of
2:25:24leadership
2:25:26are invited to attend where we talk
2:25:28about
2:25:29leadership principles and
2:25:31specific
2:25:34education
2:25:36opportunities
2:25:38we talk about motivation
2:25:42and
2:25:43we talk about
2:25:45leadership principles their
2:25:46responsibilities to
2:25:48to their teams
2:25:50and
2:25:53basically it is a it's a educational
2:25:55opportunity for them to come and get
2:25:58more information about how to
2:26:00run their business and exercise their
2:26:03stewardship over their organizations
2:26:06and you said it occurs regularly does it
2:26:09occur every year it occurs
2:26:11uh three times a year
2:26:13and then a an annual convention once a
2:26:16year so every quarter we have a major
2:26:18meeting
2:26:21i got it so if for example i were
2:26:23watching
2:26:24a video entitled leadership 2017 that
2:26:27could have been any of the four meetings
2:26:29in 2017. that's correct
2:26:32uh what about the cruise the cruise
2:26:34occurs once a year correct yes
2:26:36does it occur in a set month
2:26:38not always okay does it generally occur
2:26:42at in a particular quarter of the year
2:26:45generally um
2:26:49generally first quarter
2:26:51i believe this year it's
2:26:53going
2:26:54first month of second quarter april
2:26:58and
2:27:00do you speak at
2:27:02the cruise on the cruise yes
2:27:05um
2:27:11have you always spoken at the curse
2:27:15yes do you always speak at leadership
2:27:18yes
2:27:19are there other regular meetings or
2:27:22conferences that you speak to involving
2:27:28ifrs there are regularly scheduled
2:27:31meetings that i
2:27:34occasionally speak to
2:27:37but
2:27:38but those are the ones that i'm
2:27:41scheduled that i know i will be speaking
2:27:43out
2:27:44so if i think i understand you correctly
2:27:45there might be a weekly call that does
2:27:47occur every week and maybe once
2:27:50once in a while and you might speak at
2:27:51it
2:27:52all right sorry
2:27:54it does that uh what are some of the
2:27:56names of those
2:27:58are the trainings are they updates what
2:28:00are they called what are they called
2:28:03uh there's a weekly call called the
2:28:05lularoe show
2:28:07there is an educational
2:28:09uh
2:28:10training that goes by different names
2:28:13depending on
2:28:14the theme for the year this year it was
2:28:16called the lyft tour
2:28:18and uh
2:28:20and so in addition to the leadership
2:28:22trainings those are available to all of
2:28:24the ifrs
2:28:25and they're held in
2:28:27different geographic locations
2:28:30sorry uh did you say the lift tour
2:28:32happens once a year
2:28:33no it is ongoing i think
2:28:36this year they probably had
2:28:3816 18 different dates oh i got it it's a
2:28:41tour that occurs in multiple locations
2:28:43yeah and is the material the same at
2:28:46each location
2:28:47i don't know
2:28:50and the lularoe show
2:28:52the weekly lularoe show
2:28:54has it occurred weekly
2:28:56since
2:28:582014
2:29:00honestly i don't know when it started as
2:29:02a weekly occurrence
2:29:04and
2:29:05was it called anything else prior
2:29:08probably the
2:29:10home office update the
2:29:14home office call
2:29:18i don't know
2:29:19and maybe more
2:29:21those are two that come to mind
2:29:30is there something called the tuesday
2:29:32update is that the same as the lularoe
2:29:33show i would guess that that would be
2:29:35the lularoe show
2:29:40and have you spoken on the tuesday
2:29:41update
2:29:43yes
2:29:47and these are made available to any ifr
2:29:50online yes
2:29:52do ifrs have to participate live or they
2:29:54can can they view previous
2:29:56showings
2:30:00over time the technology has changed and
2:30:02i believe that now they can see it
2:30:03recorded
2:30:06but at some point they had something
2:30:07they had to be there live
2:30:18earlier we talked about
2:30:20the idea of mlms and you you don't
2:30:22believe that lularoe is an mlm
2:30:25uh
2:30:26what
2:30:28about lularoe is different in your mind
2:30:31from other mlm from mlms
2:30:36our
2:30:37ifrs
2:30:39purchase product from us we're a
2:30:41wholesale supplier to them
2:30:44the majority of their income is derived
2:30:46from selling that product to an end user
2:30:50in my experience
2:30:52most mlms rely on
2:30:58on what would normally be called a
2:30:59retailer actually being a user of the
2:31:02product
2:31:02and they're heavily driven by recruiting
2:31:09and you don't believe that luro
2:31:12meets that no absolutely not
2:31:16anything else different about lularoe
2:31:18from mlms
2:31:25without disparaging the mlm industry
2:31:28um
2:31:32confidential label confidential it's
2:31:33okay no there's there's a lot wrong with
2:31:37some traditional mlms and it was never
2:31:39our intent
2:31:41to participate
2:31:42in
2:31:43uh
2:31:44in a plan
2:31:46that
2:31:47that drove money back to the corporation
2:31:50without regard to the profitability at
2:31:52the at the at the ifr level
2:31:56we're here to drive profitability for
2:31:58ifrs our business model is profitability
2:32:01for an ifr that's what keeps us in
2:32:03business if they don't sell product to
2:32:05an end user they're not going to buy
2:32:07product from me
2:32:08and and they're certainly uh
2:32:11there there's
2:32:14it was never intended
2:32:16as that kind of self-perpetuating
2:32:19program where where you're just
2:32:21continually looking for new people in
2:32:23the program it started without a
2:32:26compensation plan period it started when
2:32:29deanne could no longer keep up with the
2:32:31demand to sell skirts
2:32:33and uh
2:32:35and so she's
2:32:37we're
2:32:38we're having a conversation one night
2:32:40and said
2:32:41i wonder if there's other women who
2:32:42would like the opportunity to make the
2:32:44money you've been making
2:32:46and
2:32:47she had a
2:32:48hostess that had
2:32:50held a party for her that asked if she
2:32:52could have
2:32:54if she could actually she called her and
2:32:56said hey can you come back to my house
2:32:58i've got other customers showed up
2:33:00and at that time diane would give free
2:33:02gifts to the host as a percentage if if
2:33:05you sold for every 10 pieces you sold
2:33:07you got to pick a free piece and that's
2:33:09what the hostesses were getting out of
2:33:11it
2:33:12um brittany called and and said
2:33:15hey i got more more women that showed up
2:33:17you know can you come back and you said
2:33:19well i i can't come back but you can
2:33:21meet me at the gas station
2:33:23and i'll get you some skirts
2:33:25brittany came she wanted eight skirts
2:33:27deanne said i'll tell you what if you
2:33:28buy 10 i'll give you the 11th one free
2:33:30and you can sell all of them
2:33:32and
2:33:33brittany did that
2:33:34dan left town um about two hours later
2:33:38deanne called me and she said brittany
2:33:39just called me again and she wants 30
2:33:41skirts what should i do
2:33:43and so i said well
2:33:44discount them deeper and sell them to
2:33:46her and let her make the profit that was
2:33:48the start of the lularoe
2:33:50distribution net until then it was
2:33:52deanne selling skirts
2:33:55the first
2:33:56retailers came in and they were
2:33:57successful they made a lot of money
2:33:59selling skirts and you know what when
2:34:01they made a lot of money their neighbors
2:34:02and their friends said what are you
2:34:03doing
2:34:04and they watched how they did it they
2:34:05went i think i could do that
2:34:07if i did it you know
2:34:09you know do you think they'd let me
2:34:11and so they came to us and they said you
2:34:14know what if i bring my sister what if i
2:34:16bring my neighbor what if i bring my
2:34:17cousin in do i get anything
2:34:20and i felt like it was only fair if they
2:34:22brought someone in and helped us grow
2:34:24our business that they should be
2:34:25compensated and so the very first
2:34:27compensation plan was a five percent
2:34:30bonus
2:34:30on those people's purchases
2:34:32and it was on their purchases because i
2:34:34had no idea
2:34:35what they were doing
2:34:37no way at all to track their retail
2:34:39sales they weren't even using our
2:34:40technology they were using their own
2:34:42credit card process you know square and
2:34:45other things that you know paypal
2:34:48and other ways of tracking things
2:34:50and so
2:34:51[Music]
2:34:56i
2:34:58in my experience with mlm
2:35:01over the years
2:35:03found that very often
2:35:06the story that was being told
2:35:09didn't disclose all of the information
2:35:12so they would tell you this is how it
2:35:14works but they didn't tell you about
2:35:16added costs and hidden things and some
2:35:18of those things
2:35:20we set up from the very beginning to be
2:35:21very very transparent we include free
2:35:24shipping why because if i tell you this
2:35:26skirt costs 20
2:35:28and you sell it for 40
2:35:30i want you to be able to pay 20 and sell
2:35:32it for 40. and i don't want you to have
2:35:34to say well wait a minute what did i pay
2:35:35for shipping and what else was i
2:35:37required to buy and how much other
2:35:40things did i have to do
2:35:41to comply with the companies program now
2:35:44are there other business expenses of
2:35:46course there are
2:35:47every business has business expenses
2:35:49but i wanted our relationship with our
2:35:52retailers to be very very clean and
2:35:54simple for them to understand what our
2:35:56offering to them was
2:35:59and i i don't like mlm in general and in
2:36:03fact we
2:36:04we internally say we are an mlm company
2:36:07mid-level management
2:36:09that's what i pay our the people that
2:36:11are in the compensation plan are being
2:36:13paid to perform a function that i would
2:36:15have to pay someone if they didn't do it
2:36:20just follow up on a few of the ideas
2:36:22that
2:36:23you touched on
2:36:25you talked about the majority of
2:36:28ifr income being driven by retail sales
2:36:33how do you know
2:36:34that because
2:36:37i
2:36:38because fewer than 20 of the retailers
2:36:41have ever participated
2:36:43in the compensation plan
2:36:46um i also know that uh
2:36:49i i know it anecdotally from asking
2:36:52people
2:36:53um i know by looking at wholesale
2:36:55numbers versus retail numbers now that
2:36:57we can actually actually track them
2:37:00and know what we paid out in
2:37:01compensation and i know that the
2:37:02majority of the money by far
2:37:05by a factor of three or four times
2:37:09is made by people who sell product
2:37:11at retail
2:37:16and you mentioned you know of course
2:37:18there are other business expenses what
2:37:20are some of the other business expenses
2:37:21that ifrs have
2:37:23you'd have to talk to each one of them
2:37:25it depends on their path to market
2:37:27what are some of the ones that you've
2:37:28heard of
2:37:30from them
2:37:32um
2:37:33if you're doing online sales you could
2:37:35participate in an adword program you
2:37:37would have an account could you say
2:37:38adwords adword program yes
2:37:41you might have an expense with that
2:37:43if you're
2:37:44traveling you might have a vehicle some
2:37:47vehicle expenses
2:37:49if you have space in your home you may
2:37:51have
2:37:52you might choose to
2:37:54identify that as a rental expense
2:37:59any others that you can think of
2:38:03i'm sure there's thousands more those
2:38:05are the ones that come to my mind right
2:38:06now
2:38:08are there expenses uh incurred by them
2:38:10in attending any of these conferences
2:38:13i'm sorry say that again do ifrs uh
2:38:15incur expenses to attend lularoe
2:38:17conferences yes
2:38:20do they
2:38:21pay uh lularoe to attend the conferences
2:38:24i'm sorry again do they pay lularoe to
2:38:26attend the conferences yes
2:38:30do they pay
2:38:34related to the cruise to attend the
2:38:35cruise
2:38:38they
2:38:39they do not pay
2:38:41for the crews they may have travel
2:38:43expenses associated with coming to the
2:38:45cruise
2:38:47do they pay
2:38:48laurel for any
2:38:51training that they receive
2:39:00specifically for for training no
2:39:09do they pay for
2:39:12marketing materials that they may
2:39:14receive from little row
2:39:17check to the form
2:39:20um
2:39:26not that i'm aware of
2:39:28does lularoe sell ifrs
2:39:30any
2:39:32business supplies
2:39:34i believe we sell some and what are
2:39:36those
2:39:38i believe that
2:39:39at different times on the supply store
2:39:41we've had clothing racks available
2:39:44coat hangers available
2:39:51and honestly i don't i don't know beyond
2:39:53that i know i know that there's probably
2:39:55some things that are available for them
2:39:57to purchase from us rather than from a
2:39:59third party supplier
2:40:02and you mentioned ifr's purchasing
2:40:05adwords
2:40:06what are adwords
2:40:09um
2:40:10if you're marketing and
2:40:13if people if you're trying to drive
2:40:14people to
2:40:16your location online
2:40:18there
2:40:19many of the platforms have an
2:40:20opportunity to buy
2:40:22ads
2:40:24for people that search for certain terms
2:40:26and beyond that you're way out of my
2:40:28depth i don't do adwords
2:40:30uh just aware of them does lularoe
2:40:33purchase adwords
2:40:34no
2:40:41we talked a little bit about
2:40:43profitability of ifrs
2:40:46and earlier today we talked about
2:40:49lularoe's
2:40:50average wholesale price average retail
2:40:53price
2:40:55have you calculated lularoe's
2:40:57average profit margin for a piece of
2:41:00product
2:41:04um
2:41:06for a
2:41:07piece of product
2:41:09yes there is a margin that does not mean
2:41:12it's a profit margin
2:41:14and
2:41:19any other
2:41:21marketing of the little product you can
2:41:22think of
2:41:23not off my top of my head
2:41:27circling back to
2:41:28talk about each one of those you
2:41:30mentioned marketing assets available to
2:41:32ifrs
2:41:33uh
2:41:35what sort of marketing assets are
2:41:36available to ifrs again now i followed
2:41:39that up with online photographs of the
2:41:41clothing
2:41:43you know descriptions of the clothing
2:41:45and again it's not a description as in
2:41:47this is a blouse it's uh you know this
2:41:49is a blouse made of this product that
2:41:52could be worn for these kind of
2:41:53occasions and i mean it's it's it's
2:41:57more of advertised
2:41:59type copy that they can use to present
2:42:01it to the public
2:42:03and
2:42:04i assume but correct me if i'm wrong
2:42:06that this is only available to ifrs is
2:42:08that right it's not i can't find it
2:42:10publicly no it's available to ifrs and
2:42:12uh is
2:42:14where is it stored is this a repository
2:42:16is there name for where the stuff is
2:42:18stored yeah i don't know the name for it
2:42:20i don't know how they exactly they do
2:42:24that next you mentioned management of
2:42:27social media
2:42:28what did you mean by that
2:42:31i mean managing our presence on social
2:42:33media
2:42:34instagram
2:42:36our webpage
2:42:38uh the facebook pages uh again i'm not
2:42:42really the social media guy so
2:42:45uh but in any of those platforms where
2:42:48people are coming to find out what
2:42:50lularoe is
2:42:52uh marketing manages our presence there
2:42:56and is there someone within marketing
2:42:58who specifically deals with social media
2:43:00justin lyon
2:43:03um
2:43:04is there someone who specifically deals
2:43:06with the assets available to ifrs
2:43:09it has been justin it is
2:43:12now underlorn
2:43:17and finally you talked about press
2:43:19releases
2:43:22how often does lularoe issue press
2:43:24releases seldom so
2:43:27uh who
2:43:28handles press releases
2:43:30we have a communications department
2:43:33that is
2:43:34overseen by art mccracken
2:43:38who is the
2:43:39chief strategy officer
2:43:52does anyone in
2:43:54communications or
2:43:56or
2:43:57withdraw does anyone at lularoe
2:44:04deal with marketing
2:44:06potential
2:44:07ifrs
2:44:11object to the forum
2:44:15um
2:44:17i'm not i'm not sure
2:44:19are you saying people who are not ifrs
2:44:21correct
2:44:23no not specifically
2:44:25is there anyone at lularoe who
2:44:27deals with marketing
2:44:29to recruit ifrs no
2:44:36now
2:44:40you talked about marketing assets
2:44:41available to ifrs who then could use
2:44:44that to market to end consumers does
2:44:46lularoe do any direct
2:44:48to consumer marketing
2:44:52we
2:44:53we do very little
2:44:56because there's not a clear pathway
2:44:59from that marketing to a purchase
2:45:02and our marketing relies on
2:45:04on
2:45:08really really relies on on relationships
2:45:12our retailers are selling mostly to
2:45:13people that they can see that they can
2:45:15talk to that they can
2:45:17discern what their needs are and create
2:45:19a relationship
2:45:24and
2:45:28it sounds like
2:45:30mr lyon
2:45:33justin lyon
2:45:35lauren and art
2:45:37deal a lot with marketing has mover
2:45:40started because my daughter wore it and
2:45:42her friends would go oh my gosh she
2:45:44looks so great
2:45:45and the maxi skirt was as comfortable as
2:45:47her husband sweats but just looked a lot
2:45:50better and she could just pull it on and
2:45:52go to the market put her hair in a
2:45:53ponytail and instead of pulling on her
2:45:55husband's sweats she pulled on a skirt
2:45:57and all of her friends told her how
2:45:58great she looked
2:46:13we earlier we talked a little bit about
2:46:20ifrs and
2:46:23profits that they've made
2:46:25are there
2:46:26types of ifrs that you've noticed have
2:46:29been more successful than others
2:46:31object to the forum
2:46:37when you say types
2:46:39no
2:46:46are there
2:46:48have you noticed any characteristics in
2:46:50common that successful ifrs have yes
2:46:53what are those characteristics
2:46:55you can talk to people and you have a
2:46:57work ethic
2:46:59anything else nope
2:47:09you
2:47:10noted that internally
2:47:14at lularoe you like to
2:47:16call yourself an mlm but for mid-level
2:47:18marketing or sorry mid-level management
2:47:21have you ever thought about
2:47:23cutting out the mid-level and selling
2:47:25directly to consumers
2:47:27no
2:47:43have you ever
2:47:45used certain
2:47:46successful ifrs as
2:47:49models
2:47:50or examples for other ifrs sort of as
2:47:53inspiration or as an example of here's
2:47:56what
2:47:57someone has done that's been successful
2:47:59yes
2:48:03have you ever referred to that as
2:48:05you know
2:48:06we would like to replicate so and so
2:48:08success
2:48:09check to the forum
2:48:16the specific term replicate i don't know
2:48:18but yes obviously we've
2:48:20shown people who are successful as a
2:48:22possibility of what could be done
2:48:26and are there certain ifrs who
2:48:30their approach is just
2:48:31so unusual that it wouldn't make sense
2:48:33to recommend it to others because it
2:48:35really just works for them
2:48:36injection lack of foundation calls for
2:48:38speculation
2:48:41um
2:48:44you know there are so many pathways to
2:48:46success that i would never second guess
2:48:50anyone there are people who have
2:48:52surprised me
2:48:54uh both ways there are people who i
2:48:56thought would be successful who aren't
2:48:58there are people who i thought wouldn't
2:48:59that are
2:49:01and
2:49:02each one of them has components in their
2:49:05success or their personality
2:49:08that could reach other people and i
2:49:10would never think to
2:49:13try and pigeonhole what success looks
2:49:16like lularoe
2:49:18who have been some of the biggest
2:49:19surprises
2:49:21i'm not going to say that that's fair
2:49:36so we're coming up on an hour so
2:49:38whenever you think is uh we can keep
2:49:40going just yeah um
2:49:42i have a couple small topics let me try
2:49:44to knock those off
2:49:46uh
2:49:47so
2:49:48i know lularoe has policies and
2:49:50procedures
2:49:51do fashion consultants have to follow
2:49:54those policies and procedures
2:49:59object to the form
2:50:01value as to which policies but go ahead
2:50:04we do not have
2:50:06a police force or jail
2:50:08do we encourage them strongly to follow
2:50:11policies and procedures yes are there
2:50:13consequences to egregious violations of
2:50:15policies and procedures yes
2:50:17um
2:50:19but
2:50:21do they have to no they're free
2:50:25there's consequences if they choose
2:50:26poorly
2:50:31well have you ever testified that
2:50:32they're not required to follow policies
2:50:34and procedures check to the forum if you
2:50:36have prior testimony you want to show
2:50:38them then show it to them
2:50:42and the answer is yes
2:50:46and you've also testified that at times
2:50:50policies and procedures are just
2:50:51guidelines correct same objection you're
2:50:53summarizing
2:50:55we have at times waived compliance with
2:50:58specific policies and procedures because
2:51:01of various reasons and so there have
2:51:03been times when policies and procedures
2:51:05have been waived or overridden or not
2:51:08strictly enforced
2:51:12if they were enforced it would be by
2:51:14compliance yes
2:51:18and who makes those decisions uh
2:51:21to
2:51:22waive
2:51:23policies and procedures
2:51:30which one
2:51:32well you refer to there are instances
2:51:35where
2:51:36policies and procedures have been waived
2:51:38uh in those instances that you can
2:51:40recall who made that decision
2:51:42again they've been waived they're waived
2:51:44multiple different ways at different
2:51:46times in different places for different
2:51:48reasons and different people have
2:51:49different levels of authority to either
2:51:52enforce them strictly or
2:51:55constitute a waiver
2:51:58do you have to sign off on waivers
2:52:01again depends on
2:52:03the
2:52:04the level
2:52:05of the infraction
2:52:08the
2:52:09where it is in in in you know
2:52:12what
2:52:12what did they what did they violate
2:52:17uh
2:52:18i assume deanne also has authority to
2:52:21waive the policies and procedures is
2:52:22that fair
2:52:24i would say yes
2:52:26anyone else
2:52:29yeah
2:52:30everybody on the phone
2:52:32dealing with somebody with a violation
2:52:33of policies and procedures
2:52:36again you're asking this question about
2:52:38policies and procedures as if there's a
2:52:40thing that's policies and procedures
2:52:42there there
2:52:44there's minutia there's bigger policies
2:52:47there's policies that are guidelines
2:52:49there's policies that are guidelines
2:52:51there to help protect the retailers
2:52:53there's policies that are there to
2:52:55protect the company there's policies and
2:52:57procedures about a lot of things and
2:52:59oftentimes
2:53:01if if you're on the phone with an ifr
2:53:03and you find that they maybe they
2:53:05violated map and it's their first
2:53:06violation of map
2:53:08there's not a punishment affixed to that
2:53:11therefore by saying hey you violated map
2:53:13and we'd like you not to do that in the
2:53:15future that is it's kind of a
2:53:18waiver of the policy right we haven't
2:53:20done anything about it we've just said
2:53:22hey
2:53:22you're doing this there's a policy there
2:53:25so to answer in a a broad term about
2:53:29policies and procedures is pretty
2:53:30difficult
2:53:32i understand so why don't we do it this
2:53:34way do you
2:53:36recall
2:53:39instances where you had to approve a
2:53:42waiver
2:53:47i i'm not sure
2:53:51about an instance where i approved a
2:53:54waiver there are instances where i
2:53:56instigated
2:53:57waivers
2:54:00and there probably are instances where i
2:54:03approved waivers
2:54:06but i don't have a specific recollection
2:54:10you don't have a specific question
2:54:11either of instigating or approving or
2:54:13just approving
2:54:17i don't have specific recollections
2:54:19right now of either of them
2:54:27now it will be a good time thank you
2:54:30off the record the time is 2 27 pm oh
2:54:33thank you that's great
2:54:41going back on the record the time is 2
2:54:4342 p.m
2:54:46welcome back mr student i'd like to
2:54:48change gears a little bit and turn
2:54:50towards
2:54:51the
2:54:52the point systems at lularoe
2:54:56a lot of this will be because i've seen
2:54:58it used in multiple ways and i'm just
2:55:00trying to figure out
2:55:01what
2:55:03points are used for in various contexts
2:55:06what is the difference between
2:55:08qualifying points and leadership points
2:55:14um
2:55:16i don't know
2:55:19what are leadership points
2:55:25my interpretation of
2:55:27what leadership points are
2:55:29would be points in the leadership pool
2:55:34but i'm not sure in the context you've
2:55:36got
2:55:38if if they're referring to that earth
2:55:42because it's possible that those two
2:55:43terms are being
2:55:45referenced interchangeably and just
2:55:47incorrect language
2:55:50so
2:55:51are you saying that there isn't you're
2:55:52not aware of a phrase called qualifying
2:55:54points no i am okay yes and it refers to
2:55:57the same thing as leadership points
2:56:00again
2:56:02points in the leadership pool
2:56:04is different
2:56:06they're not
2:56:07really referred to as leadership points
2:56:10and that's why i'm confused as to
2:56:11whether or not somebody is misusing
2:56:13leadership points
2:56:15to refer to their qualification or uh
2:56:19because we don't really have a
2:56:21leadership points that
2:56:24unless somebody's using a shorthand
2:56:26vernacular for that
2:56:28okay so there are points in the
2:56:29leadership pool
2:56:30um are there other
2:56:32points or point systems used at lularoe
2:56:36um
2:56:41you know
2:56:41quite honestly i'm not positive if
2:56:45we use
2:56:47dollar values or
2:56:49or assign a point value to dollar values
2:56:51in the compensation plan i'm i'm
2:56:55i'm not
2:56:57i'm i'm not sure which way that works
2:57:02and i've watched a training
2:57:05in which you
2:57:06told consultants
2:57:09if you sell lularoe products
2:57:11at lularoe's suggested retail price
2:57:14you will always hit your points
2:57:16uh
2:57:18does that
2:57:19mean anything oh object to the forum i
2:57:22don't know what you're referring to and
2:57:23what the full context of that statement
2:57:25was
2:57:26yeah out of context i don't know what
2:57:29i'm referring to
2:57:30is there a connection between
2:57:33suggested ritual price and
2:57:35points at lularoe
2:57:37again i'm not i'm i don't know
2:57:40what points they're referring to
2:57:53oh
2:58:1644
2:58:20can i borrow your copy for a second
2:58:26just
2:58:28depend on one second
2:58:30i'm sorry what do i have the same thing
2:58:34uh yours is double-sided he's a
2:58:36single-sided got it
2:58:45so this is exhibit 44
2:58:49is a
2:58:51captioning provided for a lularoe
2:58:54coaches call
2:58:56it's bates stamps
2:58:58llr-wa
2:59:01zero zero zero zero six seven four two
2:59:07and uh
2:59:08were you aware that coach's calls were
2:59:10being transcribed
2:59:12or captioned yeah okay
2:59:15uh
2:59:16why does lularoe
2:59:19caption the coach's calls we have uh
2:59:22hearing impaired retailers
2:59:25and actually to be
2:59:26precise they prefer to be called deaf
2:59:30so we have deaf retailers
2:59:34and if you turn to
2:59:47page nine and ten
3:00:00i believe this is where you're speaking
3:00:02on the coaches call
3:00:10and the paragraph about retail price and
3:00:13points
3:00:15starts uh at the bottom of page nine so
3:00:17if you could review that paragraph
3:00:19and then the next paragraph please
3:00:24this is on 6750 correct 6750-6751
3:00:29and your representation is you think
3:00:31this is mark even when deleted
3:00:33is and mark we do have dn on
3:00:35she is on right now
3:00:38and then the next person speaks
3:00:42yes i do believe that mark is speaking
3:01:35okay
3:01:36okay so
3:01:50has lularoe
3:01:53done any surveys
3:01:56involving its ifrs
3:01:58check to the form
3:02:01yes
3:02:03when
3:02:04always
3:02:07uh
3:02:08has done any surveys involving more than
3:02:10100 ifrs
3:02:11yes
3:02:12when
3:02:14often
3:02:15when was the last one i don't know
3:02:18uh you have one in mind though
3:02:23not really
3:02:24we we have a continual program of
3:02:26reaching out with information
3:02:28what is going on what you know when
3:02:33when we have internal questions about
3:02:34what's happening in the field
3:02:37we will start with
3:02:38uh
3:02:40asking
3:02:42some people that that we may that we may
3:02:45have in mind
3:02:46uh but most often we end up
3:02:50putting out surveys finding out what's
3:02:52going on out there guys what's
3:02:55how we take the temperature of the field
3:02:57and who who is taking taking the
3:02:58temperature of the field at lularoe
3:03:00mostly sales and marketing
3:03:02uh any particular person in sales and
3:03:04marketing
3:03:06um no uh
3:03:08i'm not sure how they're physically
3:03:10administered
3:03:12but
3:03:15anybody in sales and marketing wanting
3:03:17to understand what's going on can
3:03:19generate a questionnaire
3:03:21and how would that questionnaire be sent
3:03:22to ifrs again i'm not sure
3:03:26has lularoe
3:03:29commissioned any surveys uh to be done
3:03:31by third parties
3:03:34i'm sorry i did not hear has little row
3:03:36commissioned any third parties to survey
3:03:39ifrs yes
3:03:41when
3:03:45again i'm not sure of specifics i just
3:03:47know that we have had external
3:03:50surveys done
3:03:51and who
3:03:53did the external survey again don't know
3:03:56all right i did know at the time it was
3:03:58done i don't recall
3:04:02did it happen more than once
3:04:06i believe so same same consultant or
3:04:09different consultants i don't know
3:04:18has lularoe ever
3:04:22done surveys
3:04:23about how much time
3:04:24ifrs are
3:04:27working
3:04:28trying to sell a low
3:04:29product
3:04:32formal surveys
3:04:34possibly informal continually
3:04:38informally would that involve
3:04:40questionnaires
3:04:44um
3:04:47i i do not have a recollection of a
3:04:49questionnaire
3:04:50around that but that doesn't mean it
3:04:52hasn't been done
3:05:13so
3:05:29the court reporter has handed you
3:05:30exhibit 45.
3:05:33it's a printout from a website bait's
3:05:35labeled wa
3:05:37ag
3:05:44001179 you recognize this
3:05:48objective
3:05:50yes
3:05:52what is it
3:05:55it is
3:05:59apparent screen capture of
3:06:01uh
3:06:03of a map that's on the web page
3:06:08and that would be lularoe's website
3:06:10yes
3:06:11is this sometimes referred to as the
3:06:13retailer map
3:06:16i would say probably
3:06:19and when did lularoe's website first
3:06:21include
3:06:22this map
3:06:24i have no idea
3:06:29which department would this
3:06:31fall under
3:06:32marketing
3:06:34and sales
3:06:47and if you look under the pink banner
3:06:50with the words find a retailer near you
3:06:52it states
3:06:54whether you're looking to join the
3:06:55movement at lularoe or wanting to host a
3:06:57pop-up boutique
3:06:59this is a great place to start
3:07:01just use the map to locate an
3:07:02independent retailer near you
3:07:06when did the map
3:07:08display
3:07:09that for those phrases
3:07:13object foundation if you know
3:07:17no idea
3:07:24do you know how this map was created
3:07:27no
3:07:29uh whose idea was it to have a map like
3:07:31this on the website
3:07:35uh
3:07:36i don't know that it can be specifically
3:07:38ascribed to an individual
3:07:42but i thought it was a fantastic idea
3:07:44and
3:07:46i was in favor of it
3:07:51oh and it sounds like you signed off on
3:07:52it yes
3:07:57are you aware of any
3:08:00changes that have made to the retailer
3:08:01map
3:08:04and for the record we screen capture
3:08:05this on june 10th sorry january 10th
3:08:082018.
3:08:12i believe that some changes were made in
3:08:14response to complaints from your office
3:08:20uh aside from excuse me aside from those
3:08:22changes in response to our office have
3:08:24are you of any other changes that have
3:08:25been made
3:08:26it is a working document i'm certain
3:08:28that there have been changes made
3:08:29throughout the time that it was
3:08:31that it was up
3:08:33and would it be the best
3:08:36group to talk to if we wanted to drill
3:08:39down and figure out
3:08:41what changes have been made
3:08:44or marketing
3:08:48i guess it would depend on what changes
3:08:50you're referring to
3:08:52if you're referring to
3:08:54to content marketing would be your best
3:08:58contact if you're referring to
3:09:00uh
3:09:01how it's arranged how it shows up inside
3:09:04the web page how it uh
3:09:07what what's
3:09:08where the data for the map comes from
3:09:10that would be
3:09:12it
3:09:13got it
3:09:16when it says
3:09:17join the movement
3:09:19does that refer to becoming
3:09:22an ifr
3:09:24not necessarily
3:09:28what might it
3:09:30also mean
3:09:31what it would mean is that uh
3:09:35part of our branding was that we offered
3:09:38something more than just clothing that
3:09:39we offered a community that we offered
3:09:42clothing that was outside the norm
3:09:45it was colorful it was fun it was
3:09:47different
3:09:48people
3:09:49referred to themselves as
3:09:51lula's sisters there was there was more
3:09:54there than just buying clothing
3:10:20and you
3:10:22referred to
3:10:24when you said that this was
3:10:26this was uh your little rose branding
3:10:29has the branding changed
3:10:31i'm sorry you were referring to
3:10:34this
3:10:35you're referring to
3:10:38the fact that branding you're referring
3:10:39to branding the past tense like this was
3:10:40our branding has the branding changed
3:10:43i'm talking to the phone
3:10:45our
3:10:46our branding hasn't changed
3:10:49but of course as in any campaign
3:10:51reaching out to the public it has to be
3:10:53freshened and you have to find new
3:10:54language and
3:10:55uh and and new ideas that appeal to a
3:10:59new audience so yes
3:11:01the some of the phrasing and language
3:11:03changes but the concept and the actual
3:11:05underlying brand has not changed
3:11:44so exhibit 45 is bait stamped llr-wa000
3:11:50one one eight eight three
3:11:52it's an email
3:11:53dated november 13 2014
3:11:57uh it's actually addressed to you
3:11:59and in it um i miss gina prowl
3:12:02yeah
3:12:05oh parking is this 46
3:12:07exhibit 46.
3:12:13i believe we're on exhibit 47.
3:12:31handing the court report is handing you
3:12:33exhibit 47.
3:12:35this is a
3:12:36excerpt from a spreadsheet
3:12:39provided to us
3:12:41bates numbered llr-wa
3:12:45zero four two seven eight seven
3:12:48updated
3:12:50uh it's confidential
3:12:52so
3:12:54i do not print out the entire
3:12:56worksheet but just the first the top
3:12:58rows
3:12:59and
3:13:00some of the columns to capture the
3:13:02fields
3:13:03just want to run through some of these
3:13:04fields
3:13:07with you
3:13:20have you have you seen this spreadsheet
3:13:23before he was created for this
3:13:25litigation and provided our office
3:13:27i'm sorry what i was created
3:13:29by your council and assistance with uh
3:13:32lularoe provided for office
3:13:37um
3:13:39i don't recall the spreadsheet no okay
3:13:45so
3:13:45it contains
3:13:47as i understand it
3:13:49rows for ifrs
3:13:52and then details
3:13:55about
3:13:59their wholesale
3:14:01and retail sales
3:14:03and then
3:14:04some details regarding the bonuses
3:14:07do you know where
3:14:09the data
3:14:12that was used to read the spreadsheet
3:14:14came from
3:14:15the form yeah foundation
3:14:19um
3:14:20i do not
3:14:21okay so
3:14:23if i were to ask you for example if you
3:14:25turn to page
3:14:28three of six
3:14:30there are details on wholesale and
3:14:32retail sales
3:14:35you don't know where this data came from
3:14:37when this was provided to us
3:14:40um i do not okay do you know who
3:14:44we would talk to
3:14:45about those details
3:14:48most likely
3:14:50it would come from noel or somebody in
3:14:52his department
3:15:23so
3:15:37so
3:15:38exhibit 48 is
3:15:39similarly another spreadsheet
3:15:41created for this litigation and provided
3:15:43us
3:15:44base stamps ending in 64854
3:15:50it is also
3:15:52data provided to our office
3:15:54uh specifically about phone numbers
3:15:57do you have any knowledge about where
3:15:59this data came from
3:16:01no okay and wouldn't all be the best
3:16:03person
3:16:04um again no would be the best person
3:16:07and if you turn the page
3:16:09uh i'm sorry if you go to the next page
3:16:11it's a separate it's a different sheet
3:16:13in that same workbook
3:16:14this one
3:16:15simply states the size of the leadership
3:16:17pool
3:16:18on a monthly basis
3:16:20do you know where that information is
3:16:21coming from
3:16:27no
3:16:37so
3:16:48returning back to
3:16:50this idea of
3:16:52the leadership points
3:16:54sorry the leadership pool
3:16:56and points in the pool
3:17:02does lularoe
3:17:06calculate
3:17:09a dollar value
3:17:10for leadership points
3:17:19in a given month
3:17:23the leadership
3:17:25pool and points are set by a formula
3:17:28so they
3:17:30automatically calculate okay and
3:17:37is that a metric uh ever use or rely on
3:17:41or analyze
3:17:43i'm sorry i did not hear pardon me
3:17:46is that a metric or
3:17:47statistic that you ever
3:17:49use or rely on or analyze
3:17:52i do not pay close attention to it
3:17:56do you that's not the average over time
3:17:59i i really don't have a clue
3:18:01over time so that was just that's just
3:18:02one data point one at one point in time
3:18:04that was the value
3:18:06over a period of time that those were
3:18:07the values um when
3:18:10when the comp plan began
3:18:12and in the in at that point in time
3:18:15did you recall roughly what period of
3:18:17time it was within that range
3:18:20i no i don't
3:18:27i understand that you don't pay
3:18:29particular attention to this
3:18:31type of data or type of stat
3:18:33it does anyone at lura
3:18:37on the foundation
3:18:43in terms of
3:18:44of using it as some kind of metric no in
3:18:48terms of calculating it to have it paid
3:18:52the comp team would
3:18:54be aware of it
3:19:16do you ever look at what percentage
3:19:18of ifr bonuses
3:19:20come out of the leadership pool
3:19:26um
3:19:28i believe that when they get their
3:19:29compensation check it's identified but
3:19:31no i don't pay attention to it
3:19:34would uh the comp team
3:19:37they'd be aware of it do they be aware
3:19:38of it but they're not tracking it
3:19:40it's not it's not a significant
3:19:43statistic
3:20:00so lularoe
3:20:02issues 1099 miscellaneous
3:20:05tax statements to his ifrs correct
3:20:09i
3:20:09i believe so
3:20:11who
3:20:12uh handles
3:20:16those tax documents at lularoe who
3:20:19creates them and who sends them to ifrs
3:20:23um
3:20:24i i believe they're created in the
3:20:26finance department
3:20:29and where
3:20:30is finance
3:20:33pulling the data
3:20:35that goes into creating those tax
3:20:37documents checked on lack of foundation
3:20:39yeah i don't know
3:20:43i i would assume from our netsuite
3:20:45accounting
3:21:19i'm going to do one more document maybe
3:21:21we'll take a quick break
3:21:24what um
3:21:29what is an income disclosure statement
3:21:33trick to the form
3:21:40it's a
3:21:46i'm not sure that's a broad question
3:21:49yeah i'll just hand you a hand with here
3:22:09remember
3:22:11this is exhibit 49 i believe
3:22:14it's been bait stamp w-a-a-g
3:22:17zero zero one one seven five
3:22:22do you recognize this mr student yes
3:22:26and is it lularoe's 2016 income
3:22:28disclosure statement
3:22:30yes
3:22:31and who prepared this
3:22:37i don't know
3:22:42were these prepared in any other years
3:22:44other than 2016
3:22:46also don't know
3:22:50do you know where the
3:22:51data
3:22:54came from that was used to create this
3:22:59um
3:23:03specifically no
3:23:10and do you know when
3:23:13so this was we pulled this from your
3:23:14website from lularoe's website do you
3:23:16know when it was available on the
3:23:17liver's website
3:23:20no i do not
3:23:21who would be the best person to answer
3:23:23all these questions
3:23:25um
3:23:33possibly
3:23:37someone in marketing
3:23:43again i
3:23:45i don't know that anybody would have
3:23:46that knowledge off the top of their head
3:23:48so if you're
3:23:50looking for that information
3:23:56they would need to prepare
3:24:19the time is 3 36 p.m
3:24:34going back on the record the time is 3
3:24:3649 pm
3:24:39welcome back mr student i'm handing you
3:24:41exhibit 50.
3:24:44this is a screenshot of a video of the
3:24:46first frame of the video we're going to
3:24:48be using momentarily
3:24:52and it's a screen capture of a youtube
3:24:55video that's publicly available
3:25:00we
3:25:04will be
3:25:06dealing with the video in a moment but
3:25:08first i wanted to ask some questions
3:25:09about some of the elements on this page
3:25:12do you see in the bottom right corner
3:25:14of the
3:25:17kind of video frame it says
3:25:20zoom yes
3:25:23what is zoom
3:25:25it's a
3:25:27live video conferencing platform
3:25:31and lularoe has used it in the past to
3:25:35stream video conferences is that right
3:25:37correct
3:25:40and if you
3:25:42look
3:25:43maybe an inch below dan's right hand
3:25:46there's a little square
3:25:48icon and it says webinar webinars is
3:25:52that a lularoe graphic
3:25:54i don't know
3:25:57and the title of the video according to
3:25:59this webpage is tuesday 10 am lularoe
3:26:02update webinar
3:26:043.28.17.
3:26:06earlier we talked about weekly
3:26:09calls
3:26:11was one of those weekly calls a lularoe
3:26:13update call yes okay
3:26:16and does lularoe make those available
3:26:18online to ifrs
3:26:20um we we do now
3:26:22again i'm not sure that we always have
3:26:24the technology available to do that
3:26:27and in fact
3:26:28were those webinars available to anyone
3:26:30uh
3:26:32not just ifrs
3:26:34i'm not sure who they were available to
3:26:37if you look about an inch below zoom it
3:26:40says
3:26:4118
3:26:42497 watching now
3:26:45does this indicate how many people
3:26:47watch the zoom video objection lack of
3:26:49foundation
3:26:52i
3:26:54i would assume that that's what that is
3:26:58okay there's a screen in front of you
3:27:01which we're going to use to play
3:27:02portions of this video
3:27:09and
3:27:13i am going to ask that exhibit 51
3:27:16be designated as the video file if
3:27:19that's possible
3:27:20the video file is wa
3:27:23ag
3:27:24dash
3:27:25000
3:27:27three
3:27:55okay so this is the screen capture
3:28:04in general when you presented
3:28:07for the louvre update webinars did you
3:28:11prefer script in advance
3:28:14no
3:28:15do you have any outlines or notes
3:28:18sometimes yes sometimes no
3:28:28would you
3:28:29generally prepare with anyone else
3:28:30before
3:28:32presenting on these weekly calls
3:28:34um
3:28:35occasionally but not generally
3:28:46and just to confirm for the record
3:28:49in this video that's you and dan stadium
3:28:52correct correct
3:28:55and based on the background that's
3:28:56behind you can you tell where you are
3:29:00we would be in diane's office
3:29:08okay i am going to move the video to
3:29:1210 minutes and 30 seconds
3:29:26approximately it's in the heavens above
3:29:29us and it's not moving
3:29:31the next thing that people are concerned
3:29:32about is this move that we're going to
3:29:34make to
3:29:36compensation that's based on your sales
3:29:39now
3:29:40this is very simple uh there's several
3:29:42reasons why we're doing this the first
3:29:45one is so that we can completely align
3:29:48behavior in the company
3:29:50you know i've given this example before
3:29:52i want to give it again
3:29:53if i get paid when you order product
3:29:57and i call you and tell you that you
3:29:58need to order more product
3:30:00your first response is going to be he
3:30:03only says that because he's going to get
3:30:05paid
3:30:06if i get paid when you sell product
3:30:09and i tell you you need to bulk up your
3:30:11inventory a little bit you don't have
3:30:12enough inventory to have a great sell
3:30:15all once you know well gee
3:30:17he doesn't get paid unless i sell
3:30:19product so the advice he's giving me
3:30:21must be to really help me sell products
3:30:24and what it does is it aligns the
3:30:26leadership of the company
3:30:31okay
3:30:35so there are a couple
3:30:36issues discussed that i would like to
3:30:38ask you questions on
3:30:39uh
3:30:40at the beginning of the clip you
3:30:41indicated people had expressed were you
3:30:43aware at the time of any instances of
3:30:45that happening
3:30:48specific instances no but very aware
3:30:51that it was that there was a potential
3:30:55when did you become aware of this
3:30:56potential on the day we started the comp
3:30:58plan
3:31:03have you heard any
3:31:06anecdotes of that happening
3:31:11i can see that some of that may have
3:31:14happened or i'm not even going to say
3:31:16mayhem i can see that some of that
3:31:17happened by looking at order and sell
3:31:20through data
3:31:21knowing that my cell through data wasn't
3:31:23highly accurate there still was enough
3:31:25of a difference in ordering and sell
3:31:27through that i was concerned about it
3:31:34and based
3:31:36when based on the data did you become
3:31:37concerned about it
3:31:40again i was concerned about it from day
3:31:41one
3:31:46you cannot reward
3:31:49behavior a
3:31:50and anticipate that you will get
3:31:52behavior b
3:31:55unfortunately i did not have access to
3:31:57data to identify the rewards for
3:32:00behavior b so we took the next best
3:32:02thing
3:32:04and earlier we talked about how
3:32:06dan first started
3:32:09in the early days when first started
3:32:11having other people besides dan cell
3:32:13there was no comp plan
3:32:14and i think you said sometime in 2014
3:32:17was when the first comp plan came into
3:32:19existence do you have a month estimate
3:32:21on when the first comp plan came into
3:32:23existence
3:32:26so the five percent bonus was adapted
3:32:29fairly early
3:32:31um
3:32:33but the comp plan uh that that became
3:32:38uh
3:32:40that became the the management plan
3:32:43was it probably
3:32:45started in early 2014.
3:32:48i remember on the cruise having specific
3:32:51discussions about it and putting
3:32:53kind of
3:32:55discussions about
3:32:57what was available to us and what did we
3:32:59want to accomplish and how would how
3:33:00would we compensate those behaviors
3:33:03those conversations took place on the
3:33:04cruise which would have been in february
3:33:06so
3:33:07shortly after that would have been when
3:33:09the comp plan was instigated
3:33:11and just to make sure i understand your
3:33:14analogy with behavior a and behavior b
3:33:19correctly
3:33:21behavior a
3:33:23is ordering inventory right
3:33:28in this case we could make that
3:33:30assumption yes okay and behavior b would
3:33:32be selling retail right okay
3:33:39so in other words the old incentive plan
3:33:41didn't
3:33:42encourage retail sales check to the form
3:33:45i'm sorry ask again so in other words
3:33:47the old compensation plan didn't
3:33:49incentivize retail sales same objection
3:33:53the specifics of the comp plan
3:33:57maybe didn't but all of the language all
3:33:59of the education all of the discussion
3:34:02the culture everything else
3:34:05uh pointed to sales
3:34:07we were always a sales based company
3:34:10and when you say specifics what are you
3:34:12referring to
3:34:14i'm referring to
3:34:18everything around the business pointed
3:34:20to sales
3:34:22to social media
3:34:24referring to lularoe as a pyramid what
3:34:26what's social media what platforms what
3:34:28were you aware of
3:34:32we were large hugely successful
3:34:35in penetrating the marketplace with a
3:34:37clothing brand
3:34:39the sales of clothing to end consumers
3:34:42disrupted marketplaces
3:34:45people were going to buy clothing
3:34:46regardless they just found lularoe
3:34:48clothing of better value to them they
3:34:51found a higher quality they found better
3:34:53pricing they found styles that they
3:34:54liked therefore they bought our clothing
3:34:57and disrupting that status quo
3:35:00we
3:35:01created enemies
3:35:02we were attacked viciously in social
3:35:05media with all kinds of claims
3:35:09and
3:35:10wild stories and accusations
3:35:14mostly unfounded
3:35:17i actually i would say entirely
3:35:19unfounded but somewhere there might be a
3:35:22kernel of truth in something that
3:35:23somebody said
3:35:25but
3:35:26social media
3:35:28and mainstream media began to make
3:35:30claims about who we were and what we did
3:35:32and what we stood for
3:35:34that were wholly unfounded wholly untrue
3:35:38and
3:35:40eventually
3:35:42everybody will know that
3:35:49you know you've talked a lot about how
3:35:50successful the product is how successful
3:35:53ifrs are have you heard of any ifrs that
3:35:55have lost money
3:35:58yes
3:35:59have you heard of
3:36:00ifrs you've filed for bankruptcy for
3:36:02former ifrs or ifrs who filed for
3:36:04bankruptcy
3:36:07interesting question
3:36:10we
3:36:11we did some research into former ifrs
3:36:13that had filed bankruptcy and i don't
3:36:14have the data right in front of me
3:36:16but the percentage of former ifrs that
3:36:19filed bankruptcy
3:36:20was lower than the percentage of the
3:36:21general population that files bankruptcy
3:36:24so yes there were some and
3:36:28when was that research done
3:36:30last year sometime was that internal or
3:36:34internally done at lure
3:36:36i'm not sure who pulled the actual data
3:36:38it was generated internally
3:36:40do you have numbers
3:36:43um about how many ifrs or former ifrs
3:36:47lost money
3:36:49no
3:36:50do you have numbers on how many ifrs or
3:36:52former ifrs would
3:36:54have gone bankrupt
3:36:56i believe that data is somewhere that
3:36:57they generated that report the
3:36:59clarification
3:37:01we'll put exhibit
3:37:0351 aside
3:37:08i'd like to mark exhibit 52
3:37:12as bates number
3:37:14zero zero five six one eight
3:37:30okay
3:37:32so
3:37:33the file name this was produced by
3:37:35lularoe to us the file name is october
3:37:38leadership dash mark studem
3:37:40if at any point you can figure out what
3:37:42year
3:37:43this speech is please let me know
3:37:48but that is you on stage in the video
3:37:50correct correct
3:37:55i'm going to move
3:37:56to minute 4
3:38:00and 58 seconds
3:38:08and i believe when we talked earlier
3:38:10about leadership you mentioned it
3:38:11happens
3:38:12four times a year is that right correct
3:38:15well three times for leadership and one
3:38:16for convention
3:38:18and based on the background here can you
3:38:20distinguish
3:38:21whether or not it was the big one versus
3:38:23one of the three smaller ones if it was
3:38:25october it's not convention it is
3:38:27definitely a leadership and i
3:38:30i'm sorry i don't recognize
3:38:48okay
3:39:05okay
3:39:12there we go
3:39:15okay we're going to move on to the next
3:39:17exhibit
3:39:18i'm going to mark exhibit 53.
3:39:22as bates number zero zero
3:39:24five six zero five
3:39:29this one is entitled vision 2017
3:39:34and was vision
3:39:37a recurring event or was it a tour well
3:39:40vision vision would have been convention
3:39:43convention okay and when would it have
3:39:45occurred in 2017
3:39:47i'm sorry what and when would vision
3:39:49which month in 2017 would vision 2017
3:39:51have occurred
3:39:52i believe it was july
3:40:10so i'm going to move to
3:40:17so first that's you on the screen
3:40:18correct important that's you on the
3:40:20screen correct um yeah but we're i'm
3:40:22watching the same video we just watched
3:40:24sorry hold on
3:40:44so i'm now on exhibit 53 which is bates
3:40:46number 005605
3:40:52i'm going to move to 1355.
3:41:12or roughly 13 55 1351
3:41:25so i'd like to mark exhibit
3:41:2754
3:41:29as
3:41:31part of me
3:41:33this one is a physical document
3:42:11so this is a screen capture of the video
3:42:13we're about to watch
3:42:15we will be producing this
3:42:19later today
3:42:21we pulled it recently
3:42:23it's going to be base numbered wa
3:42:26ag
3:42:28005789 is the base number for the screen
3:42:31capture which we have in front of us
3:42:33and this is an interview
3:42:35you did
3:42:36with an entity called
3:42:38groco g-r-o-c-o
3:42:42it was posted on youtube in august of
3:42:452016.
3:42:46and the title of the video is how
3:42:48lularoe disrupted the fashion retail
3:42:50industry
3:42:51do you recall
3:42:52this interview mister sit up yes i do
3:42:55okay and did it occur in august of 2016.
3:42:58uh occurred in july of july 2016.
3:43:02and
3:43:05who set up this interview
3:43:07um
3:43:10well let me ask you this wait did uh did
3:43:12groco approach
3:43:13lularoe asking to do an interview yes
3:43:15okay
3:43:28do you know what groco is
3:43:32yeah it's uh
3:43:34it's a gentleman named alan olson
3:43:37and uh
3:43:39he has a cpa firm and he also does
3:43:43uh
3:43:45has a like i guess a blog where he
3:43:47interviews successful individuals
3:43:50and had you met mr olsen before
3:43:53they approached you to do the interview
3:43:55um
3:43:56i i met him and when i met him he
3:44:00approached me to do the interview
3:44:03uh where did you meet him in wyoming
3:44:06uh did you meet him kind of at a
3:44:08personal capacity while you were doing
3:44:09lularoe work no it was personal capacity
3:44:12okay
3:44:30so i'd like to mark exhibit 55
3:44:33it's a video file
3:44:35bates number wa
3:44:37dash ag
3:44:39zero zero five seven nine one
3:44:48and so this
3:44:49is the first frame of
3:44:51the video it is indeed mr olsen
3:45:04moving to minute 11
3:45:07and 22 seconds
3:45:22or rather 11 minutes and 18 seconds i
3:45:26think that it would do that and those
3:45:27numbers were a lot more conservative
3:45:29than what we've done so
3:45:31i sat down in the beginning
3:45:34with one of my consultants with an
3:45:36external consultant and we put some
3:45:38spreadsheets together and put some
3:45:40projections together and i hoped that we
3:45:42might do 100 million dollars in our
3:45:45what i consider our third full calendar
3:45:47year of business uh
3:45:49which would be actually uh 2017
3:45:5416 it would have been this year yeah
3:45:57and
3:45:58we're on track to do probably
3:46:01more than 10 times that and when i put
3:46:04those projections on paper i thought
3:46:05they were wildly optimistic i i thought
3:46:08we might be able to do it but i didn't i
3:46:10certainly didn't you know tell everybody
3:46:12in the world hey this is what we're
3:46:13going to do
3:46:15who is the external consultant you're
3:46:17referring to
3:46:18he's now a full-time employee it was
3:46:20noel knighton noel knighton was the
3:46:22external consultant who helped you with
3:46:23the projections yeah
3:46:25and when you say 100 million was that
3:46:28wholesale sales yes
3:46:32and so in
3:46:342016 uh lularoe did one billion in
3:46:37wholesale sales is that what you're
3:46:39saying
3:46:41in excess
3:46:50did mr knighton uh
3:46:52was he a consultant purely in an
3:46:53individual capacity or was he affiliated
3:46:55with a larger consulting group
3:46:58in an individual capacity
3:47:04how was he referred to you or uh
3:47:07how did you go about hiring how did you
3:47:09find him as a consultant he was referred
3:47:12by a personal
3:47:16friend returning to the 12 minute and 28
3:47:20second mark
3:47:26very quickly
3:47:28yeah we joke about our
3:47:30our month as everybody else's year
3:47:32uh because we we've actually seen
3:47:3525 growth month over month for the last
3:47:3824 months uh not exactly that but if you
3:47:41add them all up take the average we're
3:47:43averaging 25 month over month and you
3:47:46know having come from business i
3:47:47understand most companies would kill to
3:47:49have that kind of growth year over year
3:47:51and so
3:47:53business processes have been a challenge
3:47:55because uh
3:47:57things that we were able to do easily at
3:47:59a smaller scale become more and more
3:48:01complicated
3:48:04what metric are you talking about when
3:48:06you say lularoe is experiencing 25
3:48:09growth month over month gross sales
3:48:16and what were the challenges
3:48:19of this growth that you're referring to
3:48:20in this video
3:48:24all of them
3:48:25supply chain
3:48:27accounting
3:48:29order fulfillment
3:48:31customer service
3:48:33warehousing
3:48:36physical facilities physical
3:48:40the physical facilities the the
3:48:42internals the
3:48:43the
3:48:44the processes for for
3:48:47pulling product and shipping it uh
3:48:49process for for taking orders and
3:48:52processing orders processes for
3:48:54uh
3:48:55for supporting the retailers on the on
3:48:58the sale side the point of sale systems
3:49:00i mean you name a system inside of the
3:49:02business and with that kind of growth
3:49:03every one of them was under pressure
3:49:09i'm going to move to
3:49:10the 14 minutes and 40 second mark
3:49:20and we've talked a couple of times today
3:49:22about the challenges faced by
3:49:25this growth is it fair to say that
3:49:27lularoe grew at an overwhelming rate
3:49:30check to the forum
3:49:34lularoe grew at an unprecedented
3:49:37rapid rate
3:49:42not overwhelming we're still here
3:49:48okay so we're at the 14 minute and 39
3:49:50second mark
3:49:54oops
3:49:58as those consultants come through do you
3:50:00have a process that you train them
3:50:02on and how to be effective
3:50:07we have ongoing training processes and
3:50:09we use the people who have come before
3:50:11them that are in the business uh to do
3:50:14to implement a lot of that training but
3:50:16that's always a challenge as the company
3:50:17grow
3:50:18so you just said in this video
3:50:21luro uses the people that came before
3:50:22them to implement the training uh what
3:50:25did you mean by that
3:50:26i mean
3:50:30sponsors trainers coaches mentors who
3:50:34are being paid
3:50:36leadership
3:50:37compensation checks
3:50:39to help people develop
3:50:41profitable sustainable businesses
3:50:45so
3:50:46as
3:50:48and and who who tells them what to train
3:50:51on like the topics of the training
3:50:55lularoe offers
3:51:00offers educational opportunities
3:51:02but
3:51:04by virtue of the fact that they are
3:51:06successful in their business
3:51:08and in order to be at those ranks they
3:51:10had to perform some level of business in
3:51:12order to get there it's not magic
3:51:14and in order to and and so
3:51:17they teach a lot of of what they know to
3:51:21be true
3:51:22even now
3:51:24the actual sales training does not come
3:51:26from home office
3:51:28uh
3:51:28there's there are
3:51:30things that are taught from home office
3:51:32but our training
3:51:34our
3:51:35our component
3:51:37leans towards the motivational side
3:51:40where the actual how-tos and hands-on
3:51:43comes from retailers who are in the
3:51:45field actually doing the work and have
3:51:48that experience and have first-hand
3:51:50knowledge of things that have worked and
3:51:51things that didn't work
3:51:53and that's the beauty of the program is
3:51:55it's not some home office dictating do
3:51:57it this way or do it that way
3:52:00the field in many many ways has led
3:52:03a home office
3:52:05the the presence on social media was
3:52:08instigated by the field not by home
3:52:10office home office had deanne's model of
3:52:13taking product into somebody's home and
3:52:15selling it
3:52:16the field pioneered
3:52:20facebook live selling we we completely
3:52:23changed the facebook platform lularoe
3:52:26retailers changed the facebook platform
3:52:29by finding a creative way to continue to
3:52:31do their business and so when it comes
3:52:33to teaching of how to do the business
3:52:36that is exactly what i pay that
3:52:38mid-level management for because they're
3:52:40the ones that are in it and doing it
3:52:43and is it
3:52:44is that training available to all ifrs
3:52:47yes
3:52:48is it available to folks in the queue
3:52:52when they're in the queue uh
3:52:54it can be available to them absolutely
3:52:58and is it fair to say that
3:53:00lularoe and its leader and the leaders
3:53:04will provide any training that quote a
3:53:05newbie end quote
3:53:12ask the question again i'm not sure i
3:53:13understand is it fair to say that
3:53:15lularoe and the leaders
3:53:17that you mentioned that offer these
3:53:18trainings would make
3:53:20would provide any training that a a new
3:53:22person to lularoe might need
3:53:25i i would i would look at that from the
3:53:27other side and i would say that a new
3:53:30person has access
3:53:32to all the training that they might need
3:53:34through lularoe and a leader
3:53:37and do you believe that any
3:53:40new person
3:53:41can succeed at lularoe even if they
3:53:43don't have a formal business background
3:53:46yes
3:53:48and uh
3:53:53do you believe that lularoe would
3:53:54provide
3:53:55any education or mentorship that might
3:53:57be needed to succeed at lularoe
3:54:00okay
3:54:03and again when you say lularoe
3:54:08anybody that joins the business has
3:54:10access
3:54:12to resources that if they choose to
3:54:14avail themselves of those would provide
3:54:17them what they need to be successful in
3:54:18business
3:54:20to the degree that their own personal
3:54:22commitment and skill set
3:54:25and passion and desire to to to work
3:54:29their work ethic
3:54:31is sufficient everything else is
3:54:33available
3:54:36and
3:54:45in describing
3:54:47the role that leaders play in the
3:54:48training is it fair to say that lularoe
3:54:50relied on the leaders
3:54:51to train you on boards
3:54:54object to the form
3:54:57um
3:54:58yes
3:55:00joey i appreciate where we're on the
3:55:01clock i need to use the restroom okay i
3:55:03need some kind of break okay let's take
3:55:05a quick break if we could try to anyone
3:55:07who doesn't use the bathroom if you
3:55:07could stay here that'd be great also oh
3:55:09the wreck of the time is 4 57 pm
3:55:24going back on the record the time is 5
3:55:2545 pm
3:55:29welcome back sit down thank you for your
3:55:31time we're almost there before the break
3:55:33we were
3:55:35you were talking a little bit about your
3:55:37feelings about the criticisms
3:55:39uh that have
3:55:40come up in the press and how you prefer
3:55:42not to
3:55:43get dragged down by them
3:55:45it sounds like you feel like lularoe has
3:55:47been treated unfairly by the press
3:55:49coverage is there anything in particular
3:55:50you feel has been unfair about the
3:55:51coverage i'm going to object to the
3:55:53generalization and
3:55:55oversimplification of his testimony in
3:55:57the form go ahead
3:56:01again i think in the interest of the
3:56:04little bit of time we have left i mean
3:56:06yeah
3:56:07all of it
3:56:08i mean there's very very little that was
3:56:10factual in the press
3:56:13there were a couple of interviews that
3:56:14were
3:56:16somewhat balanced
3:56:18but for the most part
3:56:20people said horrible things and other
3:56:22people picked it up and reported it
3:56:23without any regard to any
3:56:27investigation of their own any
3:56:29journalistic integrity
3:56:31any desire to report the truth but more
3:56:33of a desire to
3:56:35report
3:56:36the train wreck and use it as click bait
3:56:40and uh i've seen reference to a cbs
3:56:43interview is that one of the ones that
3:56:44you feel is more balanced yes okay and
3:56:47you know you're on record today is there
3:56:49anything you want to say or put on the
3:56:51record in response to
3:56:52some of the criticisms that's that has
3:56:54come up in the press
3:56:56i've said everything i need to say
3:56:59and earlier we talked about
3:57:02um
3:57:03the dsa
3:57:05and these five factors
3:57:08two of which are less important to you
3:57:10in your mind i believe it was
3:57:12recruiting and retention
3:57:17do you think it's
3:57:19ethical to run a bonus
3:57:21structure that pays based on recruiting
3:57:23object to the form that pays on away
3:57:25pays based on recruiting
3:57:27yeah
3:57:28incomplete
3:57:36can you reread the question sorry
3:57:42and earlier we talked about the dsa and
3:57:45these five factors two of which are less
3:57:47important to you and your mind
3:57:49i believe it was recruiting and
3:57:50retention do you think it's unethical to
3:57:53run a business structure that pays based
3:57:55on recruiting same objections i'll
3:57:57rephrase do you think it's ethical to
3:57:59run a
3:58:01bonus structure that pays based on
3:58:04recruiting object to form and complain
3:58:06i'm sorry i thought that was the
3:58:08question you asked and that's why i said
3:58:10no i didn't i didn't think it was
3:58:11unethical i thought you asked if i
3:58:14thought it was ethical to base a bonus
3:58:16structure on recruiting
3:58:19and what is the answer to that and my
3:58:20answer to that is
3:58:23i think that it presents problems
3:58:28what types of problems
3:58:30um
3:58:31it opens
3:58:33an organization to
3:58:35behavior
3:58:37that
3:58:39recruits
3:58:41for
3:58:42compensation
3:58:45which
3:58:46opens you to
3:58:48uh
3:58:52to to abuses to to shading of the truth
3:58:55to not
3:58:56to to not
3:58:57not revealing all of the information to
3:59:00driving people to sign up so that you
3:59:02get a bonus i think that's completely
3:59:04unethical
3:59:06and
3:59:08prior to the
3:59:09change in the bonus structure did you
3:59:11see any of these
3:59:12problems personally within lularoe
3:59:17no okay
3:59:23when you say prior to changing the bonus
3:59:26structure
3:59:27we never had a bonus structure that
3:59:30recruited
3:59:32onboarding or that that compensated
3:59:35recruiting
3:59:36that was never the intent there was no
3:59:39specific component for signing people up
3:59:43the intent was always that as you
3:59:45brought people into the business you
3:59:47were teaching them how to run a
3:59:49successful business
3:59:57and that bonus program paid based on
3:59:59wholesale orders correct objectives
4:00:02asked and answered yes okay
4:00:05and
4:00:16you
4:00:17just a moment ago we're talking about
4:00:18teaching and helping others uh
4:00:23taking a step back big picture
4:00:25um
4:00:27have you thought at all about
4:00:29who in the organization might
4:00:34kind of
4:00:35step up and potentially take your role
4:00:37when you decide to exit the business
4:00:39objection relevance
4:00:44obviously uh organization of our size we
4:00:46have conversations about succession
4:00:50but
4:00:52there is not a specific plan at the
4:00:54moment
4:00:57excuse me let me let me let me clarify
4:00:59there is a specific plan there's not a
4:01:01specific individual there's a plan and a
4:01:03process in place for something to happen
4:01:05to me or deanne that would continue the
4:01:09management of the business but it's not
4:01:11a specific individual i understood
4:01:14uh
4:01:17just one moment
4:01:23so
4:01:28you are not aware
4:01:30if any cash incentives given to
4:01:34lularoe ifrs for recruiting
4:01:37right
4:01:38no
4:01:40for example
4:01:41someone
4:01:43paying their downline a certain amount
4:01:45to
4:01:46onboard someone
4:01:49i said for example
4:01:51a coach sponsor some someone in the
4:01:53leadership role paying someone in their
4:01:55downline
4:01:57a dollar per person to recruit i'm going
4:02:00to just object to form based on the for
4:02:02example because the previous question
4:02:04had to do with the company and now he's
4:02:05asking about other ifrs
4:02:10regardless i'm not aware of it got it so
4:02:12you're not aware of lularoe ever paying
4:02:15a cash incentive
4:02:17for someone to be onboarded right and
4:02:20you're not aware of an ifr paying anyone
4:02:22else
4:02:23a cash incentive to onboard anyone right
4:02:39have any
4:02:40so obviously the state of washington has
4:02:42investigated and brought a lawsuit into
4:02:44little row
4:02:45have any other states
4:02:48to your knowledge investigated laura
4:02:52hang on
4:02:53just give me a moment at that
4:03:08i believe that we've had inquiries from
4:03:10other states we do not have to my
4:03:12knowledge formal investigations
4:03:15so okay so other states have contacted
4:03:18lularoe over business practices
4:03:23um
4:03:25and i'm not sure that we would
4:03:27categorize it as business practices
4:03:30uh i think more often specific issues
4:03:35uh which states and what issues were
4:03:36raised i don't know
4:03:39i don't handle that specifically
4:03:42anything that you learn from council
4:03:44you're not to testify to
4:03:46correct
4:04:05are you aware of uh an entity called the
4:04:07veterans for justice
4:04:10what have you ever heard of an entity
4:04:11called veterans for justice
4:04:14it doesn't ring a bell
4:04:29yeah
4:04:30uh we're done uh your castle may have
4:04:32follow questions
4:04:34i think we're good thank you we'll
4:04:36reserve signature
4:04:38okay
4:04:39thank you thank you for your time off
4:04:40the record the time is 5 54 p.m

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