When Lt. Eric Stein saw his puppet show, he was not amused that his leader was being mocked, so he spied on Toulon through a window and discovered that the puppets were alive. He informed on Toulon to Major Kraus and Kraus came to the house and arrested him and murdered his wife. Kraus stole the secret of life formula and gave it to Dr. Hess's Deathcore Project. Kraus ordered the Nazis to burn his theater to the ground.
After killing his enemies and becoming a most wanted fugitive, Toulon returned only to get his supplies, the puppets and his stuff, then he and Peter escaped to Switzerland, after selling his home.