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The House of Fuller division 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 investigation as a result of this.
The 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 routinely adds products without permission to distributor autoship orders.
Fuller autoship orders are referred to as “Non-PO Sales” by the SEC. “Fullerettes” are the names given to distributors.
Non-PO Sales at Fuller Mexico consisted of routine delivery of fresh or promotional items, like a different lipstick color, numerous times per year.
With the opportunity to be returned, Fuller Mexico added the items to the Fullerettes’ orders, frequently at a discount or special pricing.
Distributors have to return goods to Fuller if they don’t want items they didn’t order.
Fuller said Mexico has been in decline since around 2017.
Fuller Mexico came under increased pressure 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 of distributors, this pushed Fuller Mexico’s forced autoship program into overdrive.
Through an increase in the frequency, variety, and volume of products shipped, Fuller Mexico increased its reliance 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 higher profit margin, including perfume.
Management at Fuller Mexico used “aggressive strategies” 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” in an effort 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 went 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.
And it 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,” whereby 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 product orders to their subordinates. Additionally, the full retail price rather than the autoship wholesale price was charged.
all in an effort to keep up the appearance that senior management has set company-wide sales revenue targets.
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 related 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:
(1) Tupperware’s leadership for Latin America had unrealistic expectations for sales;
(2) 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;
(3) Fullerettes had been given more product than they could reasonably sell.
Tupperware sacked “many members of Fuller Mexico and regional management for “loss of confidence” as part of their internal probe.
Late in 2019, Tupperware stopped using “director sampling” and instructed Fuller Mexico to phase out 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 pried into Fuller Mexico.
Following a second review in 2021, Tupperware came to the conclusion that not all non-PO sales at Fuller Mexico had been taken into account and that some non-PO sales amounts actually represented accounting errors 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 had not been able to supervise the use of this sort of sale, which was supposed to be restricted in scope, since it was unable to track the volume of Fuller Mexico’s Non-PO Sales with sufficient accuracy.
The Fuller Mexico information systems in existence were not set up to accurately identify, compile, and report non-PO sales.
Fuller Mexico presumably didn’t monitor its unlawful, uninvited autoship orders on purpose, in my opinion.
The SEC maintains
Tupperware should have alerted Tupperware to Fuller Mexico’s abuse of non-PO sales and its refusal to properly account for them.
Following an investigation by the SEC, it was determined that Tupperware had violated the Exchange Act’s Section 21C.
A cease and desist 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 jurisdiction over behavior that is obviously prohibited in Mexico.
The American company Tupperware is headquartered in Florida and was founded in Delaware.
Fuller Mexico, which only conducts business in Mexico, is owned by Tupperware.
As a result, we have an American MLM corporation that controls another MLM company and which, through 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.
Even though Fuller’s methods may have changed, the problem of low retail sales is likely still there.
