Caastle Lawsuits: Startup Faces New Legal Challenges

CaaStle Faces Legal Action Amidst Financial Misconduct Allegations

CaaStle, a fashion technology startup currently facing scrutiny due to accusations of financial wrongdoing leveled against its founder, Christine Hunsicker, is now contending with lawsuits initiated by both a partner organization and a supplier.

Lawsuits Filed by P180 and EXP Topco

Reports initially surfaced by Axios and subsequently confirmed by legal documents reviewed by TechCrunch, detail lawsuits brought against CaaStle by P180, a venture established to invest in businesses utilizing CaaStle’s technology, and EXP Topco, an apparel firm asserting that CaaStle failed to fulfill payment obligations following a copyright infringement settlement.

A CaaStle spokesperson has not yet responded to inquiries from TechCrunch regarding these legal proceedings.

P180's Claims of Deceptive Practices

The lawsuit filed by P180 alleges a fundamental lack of veracity in CaaStle’s representations. Specifically, the claim states that CaaStle deliberately concealed crucial information pertaining to its revenue and overall financial stability from P180.

According to the suit, this concealment led P180 to secure funding and obtain multiple loans under the expectation of acquiring viable assets, an expectation that ultimately proved unfounded. Furthermore, the lawsuit alleges that CaaStle attempted to compel a merger between the two entities.

The legal filing indicates that P180’s investors assumed control of the board due to the perceived misrepresentation. P180 is seeking damages exceeding $58 million, along with contract rescission and the dissolution of corporate connections with CaaStle.

EXP Topco's Dispute Over Settlement Payments

Simultaneously, EXP Topco is pursuing legal action, contending that CaaStle violated the terms of a settlement agreement by failing to remit agreed-upon fines related to a prior copyright infringement claim.

Potential Class-Action Suit and Prior Reporting

Axios also reports on the possibility of a class-action lawsuit against an investment firm responsible for connecting CaaStle with retail investors, though the firm’s identity remains undisclosed. Axios initially reported on CaaStle’s financial difficulties a month prior.

Hunsicker resigned from her position as CEO and stepped down from the board following the company’s announcement of an investigation into allegations of financial misconduct.

Bankruptcy Exploration and Funding

The company is currently evaluating bankruptcy options and has secured $2.7 million in financing to facilitate this process. CaaStle has reportedly raised over $530 million in total funding, with its most recent funding round in 2019 valuing the company at $43 million, as estimated by PitchBook.

Scale of Potential Fraud

In April, the board confirmed to TechCrunch that the company had been forced to furlough employees due to its precarious financial situation. Should the entirety of the $530 million in funding be lost, this case could represent one of the most significant startup fraud incidents in recent history. By comparison, Frank, a student loan application startup, was acquired by JPMorgan for $175 million; its founder, Charlie Javice, was convicted of fraud last month.

Former Employee Perspectives

TechCrunch interviewed two former employees who expressed a lack of surprise regarding the company’s financial struggles, although neither witnessed any instances of the alleged fraud directly.

One former employee, requesting anonymity, stated they do not recall regular updates concerning the company’s financial performance. “I believe there was a general acceptance that profitability was unlikely,” the employee shared with TechCrunch.

Regarding the fraud allegations, the individual commented, “No one anticipated this outcome.”