Employees typically pay taxes when they exercise their options, based on the difference between their strike price and the value of the stock at the time of their decision to exercise.
It's also likely that there were some more experienced employees who sold their shares years ago on the secondary market for a profit. Still, that's not any solace for the first-timers who didn't know any better and held onto the stock hoping for a good sale.
Since some Gilt employees Re/code spoke to left when the company was valued at as much as $25 a share, they recorded a profit on paper of more than $20 a share. This led to tax bills in the thousands, or tens of thousands for some employees, they said. Or as one put it, more than they spent on their house down payment. Some employees took out loans from friends to pay for their tax bill, others from banks.
All of these former employees requested anonymity for one of two reasons: They are embarrassed by what they see as their naivete in believing such an outcome wasn't possible, or they still work in the industry and fear retribution for speaking out on a topic that is currently a sore spot at Gilt.
Gilt, for its part, has tried at times to do right by its employees. Starting in 2011, the company began giving out restricted stock units to manager-level employees. Employees don't have to pay any per-share price to acquire these stock units, only stay employed at the company for a certain period of time to get them converted into actual shares.
CEO Michelle Peluso also worked to lower the strike price of stock twice since 2013, in an effort to make the stock more attractive to employees. However, the strike price was still around $7 as recently as a few months ago, according to sources.
Lastly, when the company raised $46 million in early 2015, its early investors had their shares converted from preferred shares to common shares, eliminating the protection they originally had that guaranteed they get their investment back in the event of a sale. Without this change, employees would have been left with considerably less money after Gilt's sale. Multiple sources said Peluso lobbied hard for this change. For some, it still wasn't enough.
CNBC's parent NBC Universal is an investor in Re/code's parent Revere Digital, and the companies have a content-sharing arrangement.