Multilevel marketing (MLM) company Paparazzi Accessories, known for its $5 fashion jewelry, has agreed to a $1.9 million settlement following accusations of operating a pyramid scheme.
The settlement follows an investigation by the Washington State Attorney General’s Office, which concluded that the Utah-based company had engaged in unlawful business practices. As part of the agreement, Paparazzi will compensate more than 7,000 independent sellers, with each individual receiving an average of $180.
Allegations and Business Model Scrutiny
Paparazzi Accessories operates through a network of independent consultants, who purchase inventory and sell it directly to consumers. However, concerns arose over recruitment-based earnings, a key indicator of pyramid schemes. Consultants were allegedly incentivized to recruit others rather than focusing on direct sales, violating Washington’s Consumer Protection Act and Antipyramid Promotional Scheme Act.
Reforms and Refunds for Sellers
In addition to the monetary payout, Paparazzi has agreed to restructure its sales practices. Sellers in Washington who purchased unsold inventory after January 2017 are eligible for a full refund if they return the products to the company.
Paparazzi, founded in 2011, has grown through social media-driven direct sales, with consultants promoting products in online live streams. Despite its popularity, the MLM model has faced ongoing criticism for placing financial risk on sellers rather than the company itself.
While the settlement allows Paparazzi to avoid a lawsuit, it also raises further questions about the ethics of MLM businesses and their impact on independent sellers.
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