SEC Charges Furniture Retailer Lovesac and Two Former Executives With Accounting Violations

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.

Trillium Capital Manager Sentenced to Federal Prison for Securities Fraud Scheme Involving Getty Images

A Mashpee man was sentenced today in federal court in Boston for his role in a scheme to artificially inflate the trading price of Getty Images Holdings, Inc. (Getty Images) and attempting to cover up the scheme.

Robert Scott Murray, 61, was sentenced by U.S. District Court Judge Denise J. Casper to 10 months in prison and two years of supervised release. Murray was also ordered to pay forfeiture in the amount of $227,543. In June 2024, Murray pleaded guilty to one count of securities fraud. Murray was a long-time investor who previously served as the Chief Executive Officer of multiple public companies, including Stream Global Services and 3Com. In 2023, Murray was the owner and manager of Trillium Capital LLC (Trillium Capital), a venture investment company located in Massachusetts. Between October 2022 and April 2023, Murray bought approximately 300,000 shares, as well as other options contracts, for shares in Getty Images, a visual media company publicly traded on the New York Stock Exchange under the ticker symbol GETY. Murray then attempted to use Trillium Capital to pressure Getty Images to change its business strategy and to add Murray to Getty Images’ board of directors.

When those efforts failed, Murray used Trillium Capital to launch a fake takeover bid of Getty Images for the purposes of driving up the trading price of Getty Images’ stock so that Murray could sell the shares he owned at the artificially inflated price….

SEC Settles Charges for Alleged Misleading Disclosures, Shedding Light on Materiality in Cyber Context

Takeaways Worth Considering

— Public companies may want to include representatives from their cyber function in discussions about periodic cyber risk disclosures to ensure the disclosure function has the benefit of current information about which risks remain hypothetical and which have been realized.

— The impact of SolarWinds’ partially successful motion to dismiss, which challenged among other things the SEC’s application of internal accounting control provisions to cyber incidents, remains unclear. These orders suggest it has not diminished the SEC’s willingness to pursue cyber incident disclosure and disclosure control cases. But the dissent issued by two commissioners discussed above suggests that the approach pursued in these orders could change should the commission makeup shift.

— While the monetary penalties it imposed on Unisys are higher than recent cyber-related settlements, the SEC cited each of the four company’s cooperation and remedial efforts in reaching the settlements. This implies that penalties would have been higher absent such cooperation and remediation. Consistent with prior SEC public statements encouraging cooperation, the orders noted the companies’ willingness to provide presentations, factual summaries, internal investigative findings and prompt responses to document and information requests.

Pressure campaign secures release of crypto executive from Nigerian prison

Crypto executive Tigran Gambaryan has been released from a Nigerian prison and is back in the U.S. following a high-profile pressure campaign by current and former government officials, members of Congress and state attorneys general who urged the Biden Administration to intervene on his behalf.

It’s unclear how much of a priority Gambaryan’s release was for the White House, but on Tuesday afternoon, President Biden held a call with Nigerian President Bola Tinubu, expressing gratitude for his leadership in securing Gambaryan’s release. Last week, Nigerian officials dropped money laundering charges against the executive, allowing for his humanitarian release to seek medical treatment for worsening health issues.

Crypto Suit Uses Texas Legal Strategy to Dial Up Attack on SEC

Crypto.com’s suit against the SEC, filed this month in Texas federal district court, represents an escalation in the industry’s battle to rein in how the agency polices digital assets.

“In response to what some have called the SEC’s war on crypto, some market participants have strategically filed suits against the SEC in jurisdictions that are considered to be more receptive to claims of regulatory overreach,” said Helen Gugel, a litigation and enforcement partner at Ropes & Gray LLP.

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If any of the crypto industry challenges to the SEC pending in Texas federal district courts result in a circuit split and land in the Supreme Court as a petition, the justices could apply both Jarkesy and Loper Bright to curtail the SEC’s crypto enforcement agenda.

“They’re definitely hoping that the Supreme Court is going to reject the SEC’s whole theory of the case,” Phillips said.

Dapper Labs Gets Final OK for $4 Million NFT Securities Accord

Dapper Labs Inc.’s agreement to pay holders of its Top Shot nonfungible tokens $4 million is fair and reasonable, a federal court said in granting final approval to the securities class settlement.

Judge Victor Marrero of the US District Court for the Southern District of New York also approved attorneys’ fees of one-third of the settlement fund, about $1.3 million, in an order Monday. Marrero preliminarily approved the settlement in June.

The token holders alleged the National Basketball Association’s Top Shot Moments—video clips of highlights from NBA games—were securities and should have been registered….