Founder who blamed $300mn fraud on head injury sentenced to prison

Fashion tech entrepreneur Christine Hunsicker, who argued that she committed a near $300mn fraud in part because a mirror fell on her head, has been sentenced to five years in prison.

Judge Paul Oetken told the courtroom on Thursday that Hunsicker “knew what she was doing and she knew it was wrong” even though he believed the injury sustained from the mirror was “real” and “contributed”.

Prosecutors had questioned the defence and pointed to internet searches they said Hunsicker made for “fraud” as well as “created an audit firm fake”.

Hunsicker founded and led an apparel rental start-up called CaaStle — named for “clothing-as-a-service”, a play on the tech concept of software as a service.

The company raised hundreds of millions of dollars from high-net-worth investors such as private equity titan Henry Kravis and chair of Alphabet John Hennessy, who also later joined the board.

CaaStle once had coveted partnerships with brands such as Ralph Lauren and Vince, with Hunsicker becoming a frequent guest on television and at conferences for business leaders.

But the company collapsed into bankruptcy after the investors realised she had been falsifying revenue figures and audited financial statements for years. A complaint from securities regulators said at one point Hunsicker exaggerated her revenues by 70 times. Hunsicker pleaded guilty to securities fraud in March.

As part of her defence, Hunsicker claimed that she suffered brain trauma after a “thirty-pound” mirror fell on her head while she was trying to move it. She presented evidence from a physician who said that, absent the injury, she would “not have engaged in the fraud”.

Her lawyer Michael Levy told the court on Thursday that the injury “eliminated executive functioning” that would otherwise have allowed her to control her actions.

Hunsicker’s defence also said she recalled “almost nothing” from 2020, 2021 or 2022 and that she was often awake only four to five hours of the day because of the injury.

Prosecutors sought a sentence of more than 12 years. Lawyers for the government said Hunsicker was “cogent enough to contemplate the consequences of her false statements” and compared her to Elizabeth Holmes, the convicted fraudster behind blood-testing start-up Theranos.

They cited a 40-minute talk Hunsicker delivered at a Goldman Sachs retail conference following the injury, as well as her internet searches after she had lied to investors, falsified audit reports and doctored bank statements.

Even after a suspicious investor reported her to the board of directors, Hunsicker kept trying to raise funds and searched “bank fraud vs. wire fraud severity”, the government’s lawyers said.

Hunsicker’s lawyers also argued that the founder had a pathological need to succeed and avoid conflict as well as issues with gambling and addiction that “took over” even after the fog from her injury lifted.

Hunsicker told the judge she wanted to apologise to investors and employees and said she “started lying about numbers not to enrich myself but to avoid conflict”.

Her lawyer also told the judge that the government’s comparison of Hunsicker to Holmes displayed a bias towards seeking harsher punishment for women who commit fraud. Prosecutor Alexandra Rothman called the idea “insulting” in her response.

Oetken ordered her to pay forfeiture and restitution to her victims, each in the amount of $283mn, and said she should start her prison sentence on October 12.