CaaStle let CEO remain after learning of alleged fraud
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The most stunning part of the CaaStle fraud allegations isn't that a huckster CEO burned through $530 million, or that she appears to have forged years of financial disclosures. It's that the company's board let her stay in charge after finding out — and took months to warn investors.
- What follows is based on research and conversations with numerous sources:
The whistleblower: Late last year, Jed Lenzner got some numbers from CaaStle that raised his eyebrows. So he eventually rang up the listed auditor, BDO.
- Lenzner wasn't a shareholder, but his firm handles the personal investments of Henry Kravis, who did back CaaStle.
- BDO told Lenzner that it had been relieved of the account years earlier. Lenzer went to CaaStle's board.
Behind the scenes: That board included John Hennessey, the former president of Stanford University and a current director of Google parent company Alphabet.
- Soon after, Hennessey quietly quit the board and was replaced by CaaStle co-founder JP Singh, a Princeton computer science professor who had left the board in 2017.
- Sometime during this transition, an investigation was launched and then-CEO Christine Hunsicker allegedly admitted to the board what she had done.
- Investors were never told about the board transition. Nor about the investigation nor the fraud.
- But many of them did hear from Hunsicker, who somehow still had her job and was trying to raise new money for CaaStle as late as last month.
- Hennessey hasn't responded to requests for comment. Nor has Hunsicker.
Delayed disclosure: Most investors didn't know about the fraud until a March 29 investor letter, while a few apparently learned about it via this newsletter.
- Same goes for the existence of DOJ and SEC investigations into the company and Hunsicker.
Fast forward: As of last week, Singh was trying to put together a rescue plan that would have required a $3 million bridge loan.
- He and interim CEO George Goldenberg told investors that the company would have to file for bankruptcy protection if the deal didn't come together by this past weekend. Not surprisingly, investors weren't so thrilled with the idea of throwing more money down a black hole, particularly when they couldn't even get a complete cap table.
- As of right now, there is no loan and also no bankruptcy filing.
- Also worth noting that Singh told investors that the loan would help CaaStle move toward a merger of sorts with P180, a Hunsicker co-founded group that allegedly owes CaaStle $14.4 million. But P180 tells me that it "never considered a merger."
- Singh has not responded to requests for comment.
