A Billion-Dollar Fashion Startup Laid Bare
CaaStle's fraud is what happens when a company has too few checks, too few balances, and too many empty board seats
“In life and business, there are two cardinal sins, the first is to act precipitously without thought, and the second is to not act at all.” – Carl Icahn
What if an executive is not right in the head and no one takes charge of the situation before it runs off the rails?
Venture capital and private equity giants dumped hundreds of millions into CaaStle, a fashion technology startup that promised big profits from “clothing as a service.” They didn’t bother to install a sufficient board of directors.
There were only two, maybe three, depending on who admits that they were on the board at a given time. There was no obvious governance plan. No audit committee. No independent investigative committee.
Just the founder, Christine Hunsicker, 48, fudging the numbers and running wild with other people’s money.
Hunsicker has pleaded guilty to a $283 million fraud. Her company, formerly called Gwynnie Bee, is in bankruptcy. And and the bankruptcy trustee is trying to claw back as much as possible on behalf of some really big, stupid money.
Read More On Hunsicker: The Empress’s New Clothes (Business Blunders)
When she confessed to her board of directors, do you know what they did? Next to nothing.
They even let her stay on as CEO and didn’t disclose their financial disaster to their investors for three months, according to a deep dive in Sunday’s New York Times.
Nobody forced her to resign. Nobody disclosed the folly to investors. Nothing much happened until criminal investigators took an interest, according to lawsuits filed by the bankruptcy trustee and the investors.
At its peak, CaaStle claimed a $1.25 billion valuation and it raised more than $600 million from a who’s who of finance and technology.
Hunsicker claimed to have raised money from Bill Ackman at Pershing Square, Jim Breyer of Breyer Capital, Peter Fenton of Benchmark, Henry Kravis at KKR, Peter Thiel of Founders Fund, and even Alphabet chairman and former Stanford University president John Hennessy, according to The Wall Street Journal.
Other reports list former Amazon executive Ram Shriram of Serpalo Ventures, investment banker Kamal Tayara of KCP Capital, and Geoff Schneider of Cava Capital, who once promised that Hunsicker’s company was “setting the stage for a new relationship between people and their clothes.”
These are not amateurs gambling on some wannabe tech bro’s app idea. They manage billions of dollars. They conduct due diligence. They negotiate shareholder rights. They demand board seats. They hire lawyers. They build audit committees.
What were they doing while they were being robbed?
Then, to cap it all off, after finally dumping Hunsicker, the company put her co-founder on the board, effectively swapping one insider for another – like that was going to help.
Hunsicker faces up to 20 years in prison when she is sentenced on Aug. 5. Her attorney plans to push for a lighter punishment, The New York Times reported.
Part of the argument for leniency may include a brain injury Hunsicker reportedly sustained in 2017 when a heavy mirror fell from her bathroom wall.
Zero checks and balances on the board. Zero checks and balances on the bathroom wall. Zero checks on the leader’s malfunctioning head.
Sounds more like Washington D.C. than New York City.
