CaaStle, a fashion startup embroiled in controversy, is facing lawsuits from both a partner and a supplier over allegations of missed payments and fraud. As reported by Axios and confirmed by lawsuits seen by TechCrunch, CaaStle is being taken to court by P180, a vehicle it launched to invest in companies utilizing CaaStle technology, and EXP Topco, an apparel company claiming CaaStle failed to pay after reaching a settlement for copyright infringement.
The lawsuit filed by P180 makes serious allegations against CaaStle, stating, “Nothing about CaaStle was true.” It claims that CaaStle attempted to conceal details about its income and financial stability from P180, fraudulently inducing it to raise capital and secure multiple loans under the expectation that P180 would acquire viable assets. The suit further alleges that CaaStle tried to force a merger between the two companies. As a result of being misled, P180’s “investors took full control of the board,” according to the lawsuit. P180 is seeking recovery of over $58 million in damages, rescission of contract, and the unwinding of corporate ties between itself and CaaStle.
EXP Topco’s lawsuit alleges that CaaStle breached a settlement agreement by failing to pay fines after reaching a settlement over alleged copyright infringement. Axios also reported on rumors of a potential class-action lawsuit against an investment firm that brought CaaStle retail investors, though the name of the investor was not disclosed.
CaaStle’s financial troubles came to light a month ago when Axios first reported the news. The company’s founder, Christine Hunsicker, resigned from the board and stepped down as CEO when the company announced it was investigating allegations of financial misconduct. TechCrunch reported that CaaStle is exploring bankruptcy and has secured $2.7 million in financing to aid in this process.
According to PitchBook estimates, CaaStle had raised over $530 million in total, with its last funding round in 2019 amounting to $43 million. In April, the board confirmed to TechCrunch that the company’s financial situation was so dire that it had to furlough employees. If the entire $530 million has been depleted, this would potentially rank as one of the largest startup fraud cases in recent history, drawing comparisons to the case of Frank, the student loan application startup purchased by JPMorgan for $175 million, whose founder, Charlie Javice, was recently found guilty of fraud.
TechCrunch spoke to two former employees who expressed they were not surprised by the news of the company’s financial troubles, although they did not witness any alleged fraud. One former employee, who wished to remain anonymous, recalled a lack of updates about the company’s financial health and said employees often joked about the company’s financial situation, saying, “I think everyone laughed it off and was like, ‘Oh, we probably don’t make any money.'” When asked about the fraud allegations, this person stated, “I don’t think anyone expected it.”
