Christine Hunsicker’s dramatic departure from CaaStle — the fashion rental platform she cofounded — just might mark the last gasp of an era that saw founders grab the money and the spotlight even as their businesses floundered.
In a stunning letter to shareholders over the weekend, CaaStle’s board said Hunsicker resigned as chief executive officer after providing “certain investors with misstated financial statements and falsified audit opinions.”
The CaaStle staff has been furloughed, the company faces a “severe and immediate liquidity problem” and “law enforcement authorities are investigating.”
The letter included CaaStle’s actual audited results for fiscal 2023, painting a picture of a company that was not just tight on cash, but relying on outside cash to stay afloat.
While net revenues for 2023 tallied $15.7 million and gross profits weighed in at $2.8 million, selling, general and administrative expenses topped $83 million, leading to a loss of $81 million.
Apparently, those are not the results floated in financial circles.
A pitch deck sent out to would-be investors said CaaStle produced earnings before interest, taxes, depreciation and amortization of $91 million for the year, according to a source who received the deck.
Even though corporate fundraising became a little more art than science as flashy tech-based companies raced to take over the world, that’s a financial disconnect that seems to require more than a little coloring outside of the lines.
The board said “no other member of the management team has been found to be aware of Christine’s misconduct,” but legal experts trying to understand what went wrong at the company emphasized the importance of the board’s oversight role.
“Absolutely nuts,” was how fashion-focused attorney Jonathan Lazarow described the situation.
“Somebody wasn’t paying attention to what was going on,” Lazarow said. “You’ve got a duty of loyalty to the company. You’ve got a duty to care to the shareholders. [CaaStle’s finances] are so backwards that the blame can’t be shouldered by one person. Everybody created a culture where this was OK and the board should have known.”
And Hunsicker and CaaStle aren’t the only ones coming under the microscope right now.
Last week, Relevance Ventures sued Nyakio Grieco, cofounder of beauty retailer Thirteen Lune, for misappropriation of company funds, fraud and breach of fiduciary duty.
“We’re seeing a reckoning coming up,” Lazarow said. “Just because it worked in Silicon Valley or just because it worked five years ago doesn’t mean it will work today. Founders need to realize it’s not their money.”
As of September 2023, CaaStle had raised $520.9 million and had accumulated a deficit of $510.5 million.
Start-ups — even buzzy start-ups — are now being pushed to do better.
“Investors today are taking a really hard look at, ‘How’s my money being spent,’” Lazarow said. “If all I’m doing is lighting rocket fuel and I don’t ever get off the launch pad, then what’s the point?”
Attorney Douglas Hand, who works with fashion companies at Hand Baldachin & Associates, said that, according to the allegations, Hunsicker appears to have gone “rogue.”
“It’s relatively rare” in fashion, Hand said. “It is more common in the business of emerging technology and one could very easily cast [CaaStle] more on that side. You’ve got a CEO who is taking individual action it seems, which is not only misleading, but since it involves fraud, it’s also criminal behavior.
“You might have a district attorney looking into it, you might have the Securities and Exchange Commission looking into it — both of whom would have the authority to bring an action and I think will,” he said.
Hand also pointed at CaaStle’s directors.
“The board of directors for a company sits there for a reason,” he said. “The corporate form does not allow the CEO to just steamroll over everyone. The fact that the CEO appears to have falsified audited financials, the audit committee should have gotten the actual audited results. It is pretty disconcerting. You have to question board members who seem to be a little bit asleep at the switch here.”
While blame is apportioned out — in the courts or elsewhere — fashion is still working out what comes next.
Hunsicker teamed with Brendan Hoffman last year and formed P180, which forged a partnership with Elyse Walker, bought 25 percent of Altuzarra and then 65 percent of Vince Holding Corp.
The idea was to help brands avoid steep markdowns by offering a rental option powered by CaaStle when goods didn’t sell at full price.
When the Vince deal was struck in January, Hoffman said “having access to the technology and team of CaaStle, founded by Christine Hunsicker, my cofounder at P180, will further advance the company’s momentum in driving improved profitability while enhancing its omnichannel experience.”
Hoffman went on to become CEO of Vince and is now having to finetune the approach — at both Vince and P180, where according to regulatory filings he is the majority shareholder.
Hoffman told WWD in a statement on Wednesday: “It’s important to note that none of CaaStle’s employees, including its now former CEO, held any positions or board seats at companies affiliated with P180. The only direct involvement CaaStle had with Vince Holding Corp. was with the Vince Unfold subscription service, which is not a material part of the business. We are currently monitoring the situation and will share updates as necessary.”
