They way it probably works in many cases is that reseller A is encouraged by the company to tell their underlings that an initial investment is required. Since ultimately it is their reseller doing the deed (not an employee or contractor) they are not liable. And individual resellers are probably too small of fish to fry.
(Incidentally, my aunt got into some health product MLM which had a 5k initial product investment similar to Lularoe. This is not made up stuff, it happens all the time, despite being illegal.)
