Donna Dellomo; Yoon Um; The Lovesac Company
U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 26166 / October 29, 2024
Securities and Exchange Commission v. Donna Dellomo, Yoon Um, and The Lovesac Company, No. 3:24-civ-01727 (D. Conn. filed October 29, 2024)
SEC Charges Furniture Company and Two Former Executives with Accounting Violations
The Securities and Exchange Commission announced today that it filed charges against Connecticut-based publicly traded furniture retailer The Lovesac Company, Donna Dellomo, CPA, Lovesac’s former CFO, and Yoon Um, CPA, Lovesac’s former controller, for accounting violations in connection with expenses Lovesac incurred shipping its furniture to customers. Lovesac has agreed to a settlement to resolve the claims against it by, among other things, paying a civil penalty of $1.5 million.
The SEC’s complaint, filed in the U.S. District Court for the District of Connecticut, alleges that Lovesac failed to properly record the cost of shipping finished products from Lovesac’s distribution center to its end customers. According to the complaint, in April 2023, Lovesac’s finance team found that invoices for products shipped during fiscal year 2023 were not recorded in Lovesac’s books and records until the first quarter of fiscal year 2024. The invoices totaled approximately $2.2 million and would have significantly impacted certain of the company’s financial metrics for the first quarter of fiscal year 2024. The complaint alleges that, to avoid impacting the company’s financial metrics and to avoid a costly restatement of the company’s fiscal year 2023 SEC filings, Dellomo and Um fraudulently concealed the $2.2 million shipping expenses. According to the complaint, Dellomo furthered the fraud by withholding information from Lovesac’s outside audit firm and then signing a document filed with the SEC she knew was false and misleading. Moreover, the complaint alleges that Lovesac and Dellomo failed to implement sufficient internal controls that may have prevented the fraudulent accounting.
The SEC’s complaint charges Dellomo with violating Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933 (“Securities Act”); Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 thereunder; and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, 13a-13 thereunder. The SEC’s complaint charges Um with violating Sections 17(a)(1) and 17(a)(3) of the Securities Act; Section 10(b) of the Exchange Act and Rules 10b-5(a), 10b-5(c), and 13b2-1 thereunder; and aiding and abetting violations of Sections 10(b), 13(a), and 13(b)(2)(A) of the Exchange Act and Rules 10b-5(b), 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. In its case against Dellomo and Um, the SEC seeks permanent injunctions, civil penalties, conduct-based injunctions, and officer-and-director bars.
The SEC’s complaint also charges Lovesac with violating Section 17(a)(3) of the Securities Act; Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. Without admitting or denying the SEC’s allegations, Lovesac has agreed to the entry of a final judgment ordering it to pay a $1.5 million penalty and imposing a permanent injunction against future violations to settle the charges.
The SEC’s case is being handled by Xinyue Angela Lin, Samantha McGregor, Patrick Noone, Alfred Day, Martin Healey, and Paul Block of the Boston Regional Office.