The Securities and Exchange Commission (SEC) recently announced charges against The Lovesac Company, a publicly traded furniture retailer based in Connecticut, as well as two of its former executives, Donna Dellomo, CPA (the company’s former CFO), and Yoon Um, CPA (the former controller), for alleged accounting violations. These charges stem from unreported shipping expenses that allegedly skewed the company's financial records and metrics. Lovesac has agreed to settle the claims, including a civil penalty payment of $1.5 million.

SEC Complaint Details

According to the SEC’s complaint, filed in the U.S. District Court for the District of Connecticut, the alleged accounting misconduct centers around Lovesac’s failure to accurately record the costs associated with shipping furniture to customers. In April 2023, Lovesac’s finance team reportedly uncovered that shipping invoices from fiscal year 2023, totaling approximately $2.2 million, had not been recorded until the first quarter of fiscal year 2024. This omission allegedly resulted in inflated financial metrics for the prior fiscal year.

The complaint further alleges that Dellomo and Um took steps to conceal these expenses to avoid a costly restatement of Lovesac’s fiscal year 2023 SEC filings. Dellomo is accused of withholding critical information from Lovesac’s external auditors and signing a document filed with the SEC that she knew contained false and misleading information. The SEC’s complaint also highlights the lack of adequate internal controls at Lovesac, which it alleges contributed to the concealment of these expenses.

Implications and SEC Enforcement

The SEC’s charges reflect a broader regulatory emphasis on accurate financial reporting and robust internal controls in publicly traded companies. These allegations underscore the need for comprehensive accounting practices and transparency, particularly for companies engaged in high-volume, distribution-heavy businesses like Lovesac. The settlement agreement illustrates the potential financial and reputational impact of SEC investigations on companies and their leadership.

To read the full SEC complaint, click here.

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