While many in Silicon Valley might prefer to forget 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, along with charges that he made two false statements to a bank and money laundering charges that, depending on how things play out, could result in a very long time in prison.
Specifically, says the DOJ, 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,” 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 breathtaking. As laid out by the DOJ, Rothenberg raised and managed four funds between the inception of his firm, Rothenberg Ventures, in 2013 and 2016, and his criminal activities began almost immediately.
According to the DOJ’s charges, after closing that initial fund:
“… 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.”
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 at RVMC, and therefore faced a shortfall at the end of the year that he did not wish to report to his investors.” The DOJ says that he then “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.”
By now, one could glean from the charges, Rothenberg felt he had appearances to keep up, too. At least, 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.
Here, suddenly, judging by the DOJ’s report, Rothenberg really begins 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 five months after defrauding that first investor, in July 2016, he “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, says the complaint, which says he also “induced 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, 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, he has collected evidence that Rothenberg fraudulently obtained at least $18.8 million.
We’ve reached out to Rothenberg for comment. In the meantime, it’s an incredible turn in what was already a nearly unbelievable story of hubris and its consequences.
Just seven months ago, in December, Rothenberg was ordered to pay more than $31 million in disgorgement, prejudgment interest, and penalties in connection with the misappropriation of investor money relating to an SEC complaint that alleged that he misappropriated millions of dollars from his firm’s funds, then used to support personal business ventures, like parties at San Francisco’s Oracle Park baseball field (known at the time as AT&T Park).
In October 2018, Rothenberg also agreed to be barred from the securities industry with a right to reapply after five years.
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, Rothenberg Ventures, became well-known in the Bay Area for “throwing bashes for entrepreneurs.” 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 at the time 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.