Almost 3 year ago to the day, TechCrunch reported on suspected fraud committed by Mike Rothenberg, a self-described “millennial venture capitalist” who’d produced a name for himself not only by eponymously branding his venture firm but for spending lavishly to woo startup founders, such as on Napa Valley wine tours, at luxury boxes at Golden State Warriors games and most famously, hosting an annual “founder field day” at the San Francisco Giants’s baseball stadium that later inspired a scene in the HBO show “Silicon Valley.”
The Securities & Exchange Commission had initially reached out to Rothenberg in June of 2016 and by final August, Rothenberg had been formally charged for misappropriating up to $7 million on his investors’ capital. He settled with the agency with no producing an admission of guilt, and, as component of the settlement, he stepped down from what was left of the firm and agreed to be barred from the brokerage and investment advisory organization with a proper to reapply following 5 years.
Now, comes the income component. Following a forensic audit carried out in partnership with the accounting firm Deloitte, the SEC is searching for $18.8 million in disgorgement penalties from Rothenberg, and an added $9 million civil penalty. The SEC is also asking that Rothenberg be forced to spend pre-judgment interest of $3,663,323.47
According to a new lawsuit filed on Wednesday, the SEC argues that Rothenberg raised a net quantity of roughly $45.9 million across six venture funds from at least 200 investors, however that he took “fees” on their capital that far exceeded what his firm was entitled to in the course of the life of these funds, covering up these “misdeeds” by “modifying accounting entries to make his misappropriation appear like investments, getting into into undisclosed transactions to paper more than diverted income, and shuffling investments from a single [f]und to yet another to conceal prior diversions.”
Eventually, it says, Deloitte’s examination demonstrated that Rothenberg misappropriated $18.8 million that rightfully belong to Rothenberg Ventures, $3.8 million of which was transferred to Rothenberg personally $8.8 million of which was utilized to fund other entities below his manage (such as a vehicle racing group and a virtual reality studio) and $5.7 of which was utilized to spend the firm’s expenditures “over and above” the management and administrative costs it was entitled to per its management agreements.
We reached out to Rothenberg this morning. He has not however responded to our request to talk about the improvement.
It sounds from the filing like he doesn’t have wiggle area to fight it, in any case. According to the SEC’s suit, the “Rothenberg Judgment” agreed upon final summer season left monetary relief to be decided by a court’s judgment, a single that “provides that Rothenberg accepts the facts alleged in the complaint as true, and does not contest his liability for the violations alleged, for the purposes of this motion and at any hearing on this motion.”
In the meantime, the lawsuit includes fascinating nuggets, such as an alleged maneuver in which Rothenberg raised $1.3 million to invest in the game engine corporation Unity but in no way essentially purchased shares in the corporation, as an alternative diverting the capital to other entities. (He at some point paid back $1 million to a single investor who repeatedly asked for the income back, but not the other $300,000.)
Rothenberg also sold a stake in the stock-trading firm Robinhood for $5.4 million, says the SEC, but rather than funnel any proceeds to investors, he once more directed the income elsewhere, such as, apparently, to spend for a luxury suite in the course of Golden State Warriors games for which he shelled out $136,000.
In a move that a single Rothenberg investor finds especially galling, the SEC claims that Rothenberg then turned about and rented that box via an on the web marketplace that enables men and women to obtain and sell suites at different sports and entertainment venues, getting at least $56,000 from the practice.
Ostensibly to preserve up appearances, Rothenberg also gave $30,000 to the Stanford University Athletics Division (he attended Stanford as an undergrad) and spent thousands of dollars on ballet tickets final year and early this year, says the SEC’s filing.
Regardless of what takes place subsequent, a single smaller victor in the SEC’s detailed findings is Silicon Valley Bank, a sprawling enterprise that has aggressively courted the tech sector considering that its 1983 founding. Final year, at the similar time that Rothenberg was agreeing to be barred from the sector, he produced a continued show of his innocence by filing suit against SVB to “vindicate the interests of its funds and investors,” the firm stated in a statement at the time.
The implication was that SVB was at fault for some of Rothenberg’s woes due to the fact it had not adequately wired income to the right accounts, but the SEC says that SVB was defrauded, offering Rothenberg a $4 million line of credit following getting presented with fabricated documents.
A loser — other than Rothenberg and the numerous men and women who now really feel cheated by him — is Harvard Company College. The cause: it utilized Rothenberg Ventures as a case study for students following Rothenberg graduated from the plan. As we’ve reported previously, that case study — funded by HBS prior to any hint of problems at the firm had surfaced — was co-authored by two professors who had a “significant financial interest in Rothenberg Ventures,” as stated prominently in a curriculum footnote.
Presumably, these ties gave self-confidence to at least some of the investors in Silicon Valley and elsewhere who later offered Rothenberg with income to invest on their behalf.
You can study the SEC’s 20-web page motion for disgorgement and penalties under, along with the 48-web page report assembled by Deloitte’s forensic accounting companion Gerry Fujimoto.
Extra reporting by TechCrunch’s Sarah Perez.
Above: Rothenberg Ventures in the course of superior days.