To be fair, at the time the mods could make anyone else a mod. That's why they did as a joke by temporarily making current reddit CEO Steve Huffman a mod of the sub. What is genuinely damning, is that they gave the moderator of that subreddit a custom avatar, and IRC would have voice conferences with him to coordinate the handling of it. Basically on a first name basis and friendly terms with him.

There has always been a big overlap between moderators and admins. It's likely some power mods are reddit staff. A few years back, reddit hired a new admin, who was formerly an adult moderator of /r/teenagers. It later turned out her father had tortured and raped a ten year old and her fiancé had tweeted about children having sex. On reddit she abused her position as admin to automatically censor any mention of this on reddit. This only came to light when the moderator of a national subreddit was automatically banned for sharing an article which mentioned her name in passing.

Obviously she was fired and reddit said she'd been improperly vetted, but given reddit's history with this kind of stuff, that seems unlikely.

Full article, I may have misremembered something: https://en.wikipedia.org/wiki/Aimee_Knight