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Mike Rothenberg

 

https://techcrunch.com/2020/06/28/with-doj-charges-disgraced-mike-rothenberg-could-now-be-facing-serious-jail-time/

 

While many in Silicon Valley might prefer to forget about investor Mike Rothenberg  roughly four years after his young venture firm began to implode, his story is still being written, and the latest chapter doesn’t bode well for the 36-year-old.

While Rothenberg earlier tangled with the Securities & Exchange Commission and lost, it was a civil matter, if one that could haunt him for the rest of his life.

Now, the U.S. Department of Justice has brought two criminal wire fraud charges against him, charges that he made two false statements to a bank, and money laundering charges, all of which could result in a very long time in prison depending on how things play out.

How long, exactly? The DOJ says the the two bank fraud charges and the two false statements to a bank charges “each carry a maximum of 30 years in prison, not more than five years supervised release, and a $1,000,000 fine,” while the money laundering charges “carry a penalty of imprisonment of not more than ten years, not more than three years of supervised release, and a fine of not more than twice the amount of the criminally derived property involved in the transaction at issue.”

The damage done in the brief life of his venture outfit — even while understood in broad strokes by industry watchers – is rather breathtaking. As laid out by the DOJ, Rothenberg raised and managed four funds from the time he founded his firm, Rothenberg Ventures,  in 2012, through 2016, and his criminal activities began almost immediately.

According to the DOJ’s charges, after closing his initial fund, he partially funded his own capital commitment to a second fund by making false statements about his wealth to his bank while refinancing his home mortgage and while obtaining a $300,000 personal loan, some of which he poured in the fund.

That’s bank fraud. Yet according to the DOJ, that was merely Rothenberg’s opening gambit.

The following year, in 2015, Rothenberg “took excess money in venture capital fees from one of the funds he was raising and managing” and because he then “faced a shortfall at the end of the year that he did not wish to report to his investors,” he found an illegal workaround. Specifically, alleges the DOJ, he “engaged in a scheme to defraud a bank by making false statements and misrepresentations to the bank in order to obtain a $4 million line of credit to pay back the fund from which he had taken excess fees.”

The idea, says the DOJ, was to “deceive his investors into believing the fund was well-managed,” which apparently worked at the time.

Of course, in reality, Rothenberg was digging an ever bigger hole for himself, suggests the DOJ. Meanwhile, he seemingly had appearances to keep up. It could be why in February 2016, according to the allegations laid out by the DOJ, he “engaged in a scheme to defraud an investor with respect to a $2 million investment that it believed it was making directly into a virtual reality content production company operating as River Studios that Rothenberg contended he wholly owned.”

The DOJ says that that instead, Rothenberg used most of it for purposes having nothing to do with that production company.

Rothenberg also — judging by the DOJ’s report — began to throw caution to the wind, perhaps because he thought he might get away with it or because he was increasingly desperate.

To wit, its complaint alleges that in July 2016, five months after defrauding that first investor, Rothenberg “engaged in a scheme to defraud as many as five separate investors when he induced them to wire a total of $1.35 million under the premise of investing in the untraded stock of a privately-held software company.” The complaint charges Rothenberg with “knowingly engaging in a scheme to defraud one investor by representing to that organization that its money would be used to purchase the software company’s shares. According to the complaint, on the same day the money was wired, Rothenberg took the money from the bank account designed to make the investment and sent it to RVMC’s main operating bank account, from which it was used for many purposes.”

No stock in the software company was ever purchased, according to the DOJ’s investigation. The agency says Rothenberg also “induced investments in his [funds] under the premise he would use the money for investments in ‘frontier edge’ technologies and take only certain limited fees for the management of the funds.” Instead, he “took more fees than to which he was entitled and invested far less of the money he raised than the operating agreements disclosed to the investors contemplated.”

Altogether, says the DOJ, it has collected evidence that Rothenberg fraudulently obtained at least $18.8 million.

We’ve reached out to Rothenberg — who has consistently denied any wrongdoing — for comment. It isn’t the only bad news he has faced lately, in any case.

In January of this year, Rothenberg was ordered to pay more than $31 million relating to an SEC complaint that alleged he misappropriated millions of dollars from his firm’s funds, then used the money to support personal business ventures.

In October 2018, Rothenberg also agreed to be barred from the securities industry with a right to reapply after five years.

All have been incredible developments in what was already a nearly unbelievable story of hubris and its consequences. Rothenberg had entered the venture scene with a splash, landing a feature story in TechCrunch, in early 2013, and touting his connections and his youth — he was 27 at the time — as advantages he enjoyed over older VCs who might not have a shot at the same companies.

Two years later, BusinessWeek dubbed him Silicon Valley’s “party animal,” as his firm became renowned in the Bay Area for “throwing bashes for entrepreneurs,” including expensive parties at San Francisco’s Oracle Park baseball field (known at the time as AT&T Park). Rothenberg, a self-described former math Olympian who attended Stanford before getting an MBA from Harvard Business School, said at the time, “The way we build a scalable network is by hosting a lot of events.”

He seemed to dismiss questions about how they were paid for, but he did tell BusinessWeek that he provided some of the earliest funding to Robinhood, the stock-trading app that was most recently valued at $7.6 billion and whose cofounders and CEOs attended Stanford at the same time as Rothenberg.

It was an auspicious start, in short. Alas, by the summer of 2016, the firm’s employees were scattering to the winds, and investigators were beginning to take notes.

USA DOJ ANNOUNCEMENT: San Francisco Venture Capitalist Charged In Wide-Ranging Schemes to Defraud

Department of Justice
U.S. Attorney’s Office
Northern District of California

Defendant Raised Millions for Investment in Silicon Valley Start-Ups But Allegedly Took Fees Far Exceeding What Agreements Allowed

SAN FRANCISCO – Michael Brent Rothenberg was charged in a criminal complaint with wire fraud in connection with a scheme to invest in a privately-traded software company in 2016, and in an information in connection with multiple schemes to defraud spanning from 2013 to 2016, announced United States Attorney David L. Anderson, Federal Bureau of Investigation Special Agent in Charge John F. Bennett, and Kareem Carter, Special Agent in Charge of Criminal Investigation at the Internal Revenue Service.  Rothenberg made his initial appearance in federal court today before Magistrate Judge Westmore.

According to the complaint and information, Rothenberg, 36, of San Francisco, California, is alleged to have orchestrated multiple schemes to defraud his victims.  Rothenberg founded a venture capital company, Rothenberg Ventures Management Company, LLC (“RVMC”), that he used between 2013 and 2016 to raise and manage four annual funds whose purpose was to invest in Silicon Valley start-up companies, and particularly companies in the field of virtual reality technologies.

The information filed today alleges that Rothenberg partially funded his capital commitment to the second of those funds by committing bank fraud.  Specifically, in 2014, Rothenberg made false statements about his wealth to his bank while refinancing his home mortgage and while obtaining a $300,000 personal loan, and poured some of the ill-gotten money he obtained from the bank into the second of his funds.

In 2015, the information alleges that Rothenberg took excess money in venture capital fees from one of the funds he was raising and managing at RVMC, and therefore faced a shortfall at the end of the year that he did not wish to report to his investors.  At the end of 2015, the information alleges that Rothenberg engaged in a scheme to defraud a bank by making false statements and misrepresentations to the bank in order to obtain a $4 million line of credit to pay back the fund from which he had taken excess fees.  In so doing, Rothenberg attempted to deceive his investors into believing the fund was well-managed and that RVMC was following the operating agreements the investors understood controlled the management of the fund.

In February 2016, according to the allegations laid out in the information, Rothenberg engaged in a scheme to defraud an investor with respect to a $2 million investment that it believed it was making directly into a virtual reality content production company operating as River Studios that Rothenberg contended he wholly-owned.  It is alleged that, rather than using that investment at River Studios as he had represented, Rothenberg used most of it for non-River Studios purposes.

The complaint then alleges that, in July 2016, Rothenberg engaged in a scheme to defraud as many as five separate investors when he induced them to wire a total of $1.35 million under the premise of investing in the untraded stock of a privately-held software company.  The complaint charges Rothenberg with knowingly engaging in a scheme to defraud one investor by representing to that organization that its money would be used to purchase the software company’s shares.  According to the complaint, on the same day the money was wired, Rothenberg took the money from the bank account designed to make the investment and sent it to RVMC’s main operating bank account, from which it was used for many purposes.  The complaint alleges that no stock in the software company was ever purchased.

Finally, the information sets out allegations about a series of investors as to whom Rothenberg engaged in a scheme to defraud in 2015 and 2016 by inducing their investments in his RVMC-managed funds under the premise he would use the money for investments in “frontier edge” technologies and take only certain limited fees for the management of the funds.  Instead, Rothenberg took more fees than to which he was entitled and invested far less of the money he raised than the operating agreements disclosed to the investors contemplated.

Today’s allegations in the criminal complaint and information state that the evidence has established that since 2013 Rothenberg fraudulently obtained at least $18.8 million through his illegal conduct.

The criminal complaint unsealed today charges Rothenberg with wire fraud, in violation of 18 U.S.C. §§ 1343 and 2.

The information filed today charges Rothenberg with 23 crimes, including the one set out in the criminal complaint.  For his two schemes to defraud a bank, Rothenberg is charged with two counts of bank fraud, in violation of 18 U.S.C. §§ 1344 and 2, and two counts of making a false statement in a loan application to an FDIC-insured lender, in violation of 18 U.S.C. §§ 1014 and 2.  With respect to his scheme to defraud an investor in River Studios, Rothenberg is charged with three counts of wire fraud, in violation of 18 U.S.C. §§ 1343 and 2, and four counts of engaging in monetary transactions in property derived from specified unlawful activity, commonly known as money laundering, in violation of 18 U.S.C. §§ 1957 and 2.  For his scheme to defraud investors in the untraded stock in a privately held software company in July 2016, Rothenberg is charged with four counts of wire fraud, in violation of 18 U.S.C. §§ 1343 and 2.  Finally, for his scheme to defraud investors in his funds in 2015 and 2016, Rothenberg is charged with eight counts of wire fraud, in violation of 18 U.S.C. §§ 1343 and 2.

Each of the wire fraud charges carries maximum statutory penalties of up to 20 years in prison, not more than three years supervised release, and a $250,000 fine.  The two bank fraud charges and the two false statement to a bank charges each carry a maximum of 30 years in prison, not more than five years supervised release, and a $1,000,000 fine.  Finally, the money laundering charges carry a penalty of imprisonment of not more than ten years, not more than three years of supervised release, and a fine of not more than twice the amount of the criminally derived property involved in the transaction at issue.  However, any sentence following conviction would be imposed by the court only after consideration of the U.S. Sentencing Guidelines and the federal statute governing imposition of a sentence, 18 U.S.C. § 3553.

The charges contained in the criminal complaint and information are mere allegations.  As in any criminal case, the defendant is presumed innocent unless and until proven guilty in a court of law.

Magistrate Judge Westmore ordered Rothenberg released on $250,000 bond pending the outcome of the case.  Rothenberg’s next appearance is scheduled for August 27, 2020, at 10:30 a.m.

The case is being prosecuted by the Special Prosecutions Section of the U.S. Attorney’s Office.  The case is being investigated by the FBI and IRS Criminal Investigations.