The U.S. Securities and Exchange Commission (SEC) charged Christine Hunsicker, the co-founder, Chief Executive Officer, and Chair of CaaStle, Inc., formerly Gwynnie Bee, Inc., with creating and disseminating false financial statements and audit reports to investors while raising more than $250 million for CaaStle, a private company.
The SEC’s enforcement complaint, filed in the U.S. District Court for the Southern District of New York, charges Hunsicker with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
The Commission’s Complaint alleges Hunsicker created and then disseminated to investors false financial statements while raising more than $250 million for CaaStle through the offer and sale of preferred stock and common warrants. As alleged, Hunsicker’s fake financials supported her narrative that CaaStle, a startup that offered a new monetization model called “Clothing-as-a-Service” to the apparel industry, enjoyed rapid and steady revenue growth after a rebrand of the business, experienced exponential increases in profitability thereafter, and was nearing an initial public offering or sale. The discrepancy between Hunsicker’s misstated financial results and the company’s actual results continued to grow in magnitude year-over-year, culminating in false financial statements that overstated revenues by more than 7,300%, even though the company was never profitable, per the SEC’s court papers. As CaaStle appeared to be close to reaching profitability, investors increasingly began to ask for audited financial statements. To maintain her ruse, Hunsicker took CaaStle’s signed audit report, altered the numbers, removed the going concern statement in the audit opinion letter, and provided the falsified audit to investors the SEC contends.
Many investors believed that, using CaaStle as a middleman, they were indirectly purchasing discounted shares in secondary transactions from founders, employees, and others who needed liquidity for various personal reasons. Typically, however, these investors were purchasing original issue shares directly from CaaStle, and each CaaStle investor owned a smaller percentage of the company than they realized, per the SEC.
The complaint seeks permanent injunctive relief, including a conduct-based injunction, an officer-and-director bar, disgorgement of ill-gotten gains and prejudgment interest, and a civil penalty. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York (USAO) announced criminal charges against Hunsicker.
SEC Stock Fraud Lawyer David R. Chase
Nationally recognized SEC enforcement defense lawyer David Chase, of the Law Firm of David R. Chase, has successfully represented individuals in SEC investigations around the country for more than 25 years, having previously worked in the SEC’s Division of Enforcement as a Senior Counsel. If you are under SEC investigation, or just received a SEC subpoena or Wells Notice anywhere in the country, and require strategic legal counsel to navigate you through the SEC investigation process and protect your interests, contact David at: 800-760-0912 or e-mail him at: david@davidchaselaw.com. Visit the Firm’s website for valuable content, to read about David’s SEC defense background, and to review the firm’s successful results for its clients at: www.securitiesfrauddefense.net.
