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Her Product Inspired 'Oprah's Favorite Things,' But A Business Mistake Cost Her Everything

Karen Neuburger opens up about the mistake that cost her millions.

In 1996, Oprah fell in love with a pair of pajamas.

She wore them frequently around her own house during the day, she gave them away to countless friends as gifts and she couldn't stop raving about the soft comfort of this unique sleepwear. Other people simply had to know about these PJs, Oprah thought, and soon enough, "Oprah's Favorite Things" was born.

One pair of pajamas inspired "Oprah's Favorite Things," which has been going strong for nearly 25 years. The person behi
One pair of pajamas inspired "Oprah's Favorite Things," which has been going strong for nearly 25 years. The person behind the PJs, however, didn't have a storybook ending.

One pair of pajamas inspired "Oprah's Favorite Things," which has been going strong now for nearly 25 years. The woman behind those PJs, however, didn't have her own storybook ending.

Karen Neuburger, a former fashion industry executive, created the very first set of PJs for herself after the birth of her second child. Friends became fans, then Oprah became one, and the pajamas' popularity took off. By 2004, Karen's business -- KN Karen Neuburger -- was reportedly worth $100 million.

You'd think that selling all those pajamas would have turned Karen into a millionaire herself, but as she revealed to "Oprah: Where Are They Now?" recently, that wasn't the case.

Karen was floating on air when her business began to take off. But when a big order came in, she needed help and si
Karen was floating on air when her business began to take off. But when a big order came in, she needed help and signed documents without understanding what she was really giving up.

Things began to go downhill after Karen received a particularly large order that she knew she'd have trouble filling herself.

"I got a big order -- a single order -- for about $400,000. That was way over my capacity," she says. "I went to a friend who I had worked for, and he had everything I needed. He had a big warehouse, he had a big business at the time. So, he was willing to make a deal."

That deal, however, ended up being Karen's professional unraveling.

"He became my partner, but he was adamant that he have controlling stocks," she continues. "In other words, he owned more of the company than I owned."

I started off badly, and it did nothing but get worse.

Desperate to fulfill her order at the time, Karen agreed… despite not having a clear understanding of what she was signing. 

"What I didn't pay enough attention to is anything that had to do with legal matters -- boards, the stocks and shareholders -- I didn't understand any of that," she now admits.

Rather than reviewing the documents with her own lawyer, Karen made the million-dollar mistake of using the other's side's lawyer instead.

"I did not bring my lawyer. I used his lawyer," she says of her business partner. "He made his corporate lawyer available to me for documents. So, I started off badly, and it did nothing but get worse."

Not only did Karen lose the company she started out of her own kitchen, but she also lost the rights to use her own name in b
Not only did Karen lose the company she started out of her own kitchen, but she also lost the rights to use her own name in business ever again.

In 2009, Karen lost KN Karen Neuburger to her business partner after a two-year legal battle. She no longer retains any ownership over the company or the use of her name in business. Effectively, Karen Neuburger cannot use her own name in business ever again.

"I can call myself Karen Neuburger, but for a business? I cannot use it for business," she says.

In 2011, Karen's business partner sold KN Karen Neuburger to an Israeli company called Delta Galil. Although Karen has worked as a consultant for Delta Galil in the past and retains a positive relationship with the company, she received no money when a pair of KN pajamas are sold.

In the video below, Karen speaks out about her grief over losing the rights to her name and opens up about the latest business venture she is a part of. Though she tells Oprah that she is happy now, Karen adds that some of the grief of her experience hasn't gone away.

"This is hard for me, still," Karen admits. "This was my baby, and it was good."

"Oprah: Where Are They Now?" airs Saturdays at 10 p.m. ET on OWN.

CORRECTION: A previous version of this story stated that Delta Galil is an Iranian company. It is an Israeli company.

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