Hidden Costs Result in SEC Settlement for Lovesac

Ever wondered how a seemingly cozy company, known for its iconic bean bags and modular couches, could find itself tangled in an accounting scandal? Lovesac, the furniture brand that brought comfort into living rooms nationwide, now faces a hard-hitting reality: a recent $1.5 million settlement with the SEC over some very costly missteps. 

Behind the Cushions

Founded in 1995, Lovesac built a reputation on adaptable, sustainable furniture. But even a strong brand can face internal challenges. And the most comfortable setup can hide a rough patch, and that’s precisely what happened when the company’s internal financial practices unravelled. 

So, what led to this massive settlement? In October 2024, the SEC revealed Lovesac had delayed reporting $2.2 million in shipping expenses from fiscal year 2023 until the next quarter, making the company’s financial health look more vibrant than it really was. Inflated numbers? Misled investors? Not exactly what you’d expect from a brand known for reinventing how we lounge. 

Key Players Caught in the Bean Bag Bounce 

Meet the main players of this slip-up: 

• Donna Dellomo: Lovesac’s CFO from 2017 to mid-2023, instrumental in the brand’s IPO and revenue growth. But those accounting achievements come with a question mark now. 
• Yoon Um: A short-lived Controller who joined in late 2022 and left as the scandal heated up. Despite her CPA credentials, she’s now linked to missteps that rattled the brand. 

A Peek Under the Covers 

Why did two experienced CPAs let this happen? The SEC claims Dellomo and Um buried shipping expenses to maintain strong financial metrics. Think of it like fluffing a sagging pillow to make the couch look pristine—a temporary fix that doesn’t hold up under pressure. The pressure to hit targets? It’s a story we’ve heard before, echoing high-profile cases like Enron or WorldCom. Although Lovesac’s misstep isn’t as monumental, it’s a serious reminder: one financial miscalculation can shake even the most comfortable brand. 

Stock Market Whiplash

When news of Lovesac's SEC settlement broke, it wasn’t just the brand’s image that took a hit—its share price took a dive, too. Investors watched as the stock wobbled, reflecting the market’s unease over governance concerns and long-term viability. After all, a company’s financial health is measured not just by cozy couches but also by how well it handles transparency and trust. 

In September 2024, Lovesac's stock plunged below $20 per share following the announcement of a $1.5 million settlement with the SEC over unreported shipping expenses. The revelation shook investor confidence, sparking fears about internal controls and financial integrity. Such regulatory issues remind investors to reassess risks, as market volatility often follows in the wake of governance scandals. Yet, in the chaos, some investors are finding opportunities. While many remain cautious, others are hopeful that Lovesac’s focus on tightening financial practices and expanding showrooms could signal a rebound. 

Settlement Softens the Blow, But Is It Enough? 

Lovesac has agreed to pay $1.5 million to the SEC without admitting guilt. The brand promises improved internal controls—kind of like reinforcing a couch frame to keep everything upright. But will that settle investors’ concerns? With 254 showrooms and ambitious expansion plans, only time will tell if the brand can keep investor confidence cushioned. And for professionals, particularly CPAs and auditors, the case is a fresh example of why internal controls are more than just technical jargon. Stay informed with our weekly newsletter, offering key financial updates, expert analysis, and the latest trends—all delivered straight to your inbox.