The House of Fuller branch in Mexico has been falsifying its autoship sales orders.
Tupperware, the parent business, exposed the fraud in an SEC filing in August 2021. The SEC launched an inquiry as a result of this.
House of Fuller was purchased by Tupperware in 2005. On the Tupperware website, House of Fuller is referred to as Fuller Cosmetics.
The business is known as Fuller Mexico in Mexico.
It is alarming that Fuller Mexico often adds goods without permission to distributor autoship orders.
Fuller autoship orders are referred to as “Non-PO Sales” by the SEC. “Fullerettes” are the name given to distributors.
Non-PO Sales at Fuller Mexico consisted of routine delivery of fresh or promotional products, such as a different lipstick color, numerous times each year.
With the opportunity to be returned, Fuller Mexico included the products to the Fullerettes’ orders, frequently at a discount or special pricing.
Distributors have to return goods to Fuller if they didn’t want anything they didn’t order.
Fuller Mexico has been in decline since around 2017.
Fuller Mexico came under increased criticism from Tupperware management at the global and regional levels of Latin America as its sales fell short of estimates between 2017 and 2019.
To the extra harm to distributors, this pushed Fuller Mexico’s forced unwanted autoship program into overdrive.
Through a rise in the frequency, variety, and volume of items supplied, Fuller Mexico expanded its dependence on and utilization of non-PO sales.
Non-PO sales started to rise as early as 2018 and turned away from the intended goal of offering new or promotional products at a discount and toward items with a greater profit margin, including perfume.
Management at Fuller Mexico used “aggressive methods” to keep distributors engaged.
One of these aggressive tactics was known as a “reactivation order,” also known as a “suggested order,” in which Fullerette supervisors identified Fullerettes who were about to stop being active in Fuller Mexico’s system and sent out unexpected “reactivation orders” to get them back to work and keep them from going inactive.
According to Fuller Mexico’s policy, bad debt for a Fullerette’s sales had to be reserved at a higher rate once the Fullerette was inactive.
First, which is already terrible enough, you’re sending out orders that haven’t been requested. You then fine distributors for failing to pay for goods they never requested,
This is unquestionably the worst instance of an MLM organization intentionally damaging customers that I have witnessed in a while.
It just gets worse…
Along with management purposefully hurting customers, Fuller Mexico also put in place structures that let top distributors take advantage of them.
Another tactic was known as “director sampling” or the “red button,” wherein Fuller Mexico divisional directors who were in danger of falling short of their sales goals might amend the Fullerettes’ instructions to include Non-PO Sales.
Products that weren’t on sale were included in the Non-PO Sales in this case.
As part of its IT upgrade, Fuller Mexico established this procedure in 2018.
A button was pressed by the top Fuller distributors, who then transmitted unsolicited goods orders to their subordinates. Additionally, the full retail price rather than the autoship wholesale price was charged.
All to keep up the appearance that senior management has set company-wide sales revenue objectives.
Internal auditing conducted by Tupperware in 2019 revealed Fuller Mexico’s unethical behavior.
According to Tupperware’s quarterly report submitted to the Commission in November 2019, which details the $10 million reserve adjustment made in the third quarter of 2019, the company increased its reserves.
Tupperware first blamed current trends and outside reasons, such as decreased consumer purchasing, for the change in accounting estimate determination for figuring Fuller Mexico’s returns reserve and other associated reserves, such as accounts receivable and inventory.
Tupperware insisted that since it was a change made in light of fresh knowledge, it wasn’t an accounting error.
However, a subsequent investigation revealed that Tupperware’s leadership for Latin America had unrealistic expectations for sales, (ii) Fuller management had created sales strategies to help meet sales targets, along with incentives or promotions to make the product more appealing to the Fullerettes, and (iii) Fullerettes had been given more product than they could reasonably sell.
Tupperware sacked “many members of Fuller Mexico and regional management for ‘loss of trust” as part of their internal probe.
Late in 2019, Tupperware stopped using “director sampling” and instructed Fuller Mexico to phase down Non-PO Sales, which was finished in early 2020.
For the fourth quarter of 2019, Tupperware’s books had an additional $9 million revision. At the time, it was anticipated that $31 million in unauthorized goods orders had been submitted to Fuller distributors in Mexico.
But the worse things grew, the more Tupperware probed into Fuller Mexico.
Following the second review in 2021, Tupperware concluded that not all Non-PO Sales at Fuller Mexico had been taken into account and that some Non-PO Sales figures represented accounting mistakes rather than just variations in estimations.
By revealing the existence of a Commission inquiry and restating its report on ICFR to indicate a new serious weakness linked to the circumvention of internal accounting controls by Fuller Mexico management, Tupperware issued an updated annual report for 2020 in August 2021.
Tupperware admitted that previously, it has not been able to supervise the usage of this sort of sale, which was supposed to be restricted in scope, since it was unable to track the amount of Fuller Mexico’s Non-PO Sales with sufficient accuracy.
The Fuller Mexico information systems in existence were not set up to accurately detect, compile, and report Non-PO Sales.
Fuller Mexico presumably didn’t monitor its unlawful, uninvited autoship orders on purpose, in my opinion.
The SEC asserts
Red signs should have alerted Tupperware to Fuller Mexico’s abuse of Non-PO Sales and its refusal to properly account for them.
Following an inquiry by the SEC, it was determined that Tupperware had broken the Exchange Act’s Section 21C.
A cease injunction issued on September 29 requires Tupperware to pay a $900,000 civil penalty.
In addition to securities fraud, I’m not sure who has control over behavior that is prohibited in Mexico.
The American firm Tupperware is headquartered in Florida and was founded in Delaware.
Fuller Mexico, which solely does business in Mexico, is owned by Tupperware.
As a result, we have an American MLM corporation that controls another MLM company and which, via clearly hostile actions, defrauded Mexican consumers of millions of dollars.
I believe there is behavior that the FTC and the comparable Mexican FTC can get their teeth into.
If forced, uninvited autoship orders were to be used by Fuller Mexico to keep the company afloat, then it is obvious that the company is run as a pyramid scam.
Although Fuller’s methods may have altered, the fundamental issue of meager retail sales probably still exists.
