Whereas many in Silicon Valley would possibly choose to neglect about investor Mike Rothenberg roughly 4 years after his younger enterprise agency started to implode, his story remains to be being written, and the newest chapter doesn’t bode properly for the 36-year-old.
Whereas Rothenberg earlier tangled with the Securities & Alternate Fee and misplaced, it was a civil matter, if one that would hang-out him for the remainder of his life.
Now, the U.S. Division of Justice has brought two criminal wire fraud charges in opposition to him, expenses that he made two false statements to a financial institution, and cash laundering expenses, all of which might end in a really very long time in jail relying on how issues play out.
How lengthy, precisely? The DOJ says the the 2 financial institution fraud expenses and the 2 false statements to a financial institution expenses “every carry a most of 30 years in jail, no more than 5 years supervised launch, and a $1,000,000 nice,” whereas the cash laundering expenses “carry a penalty of imprisonment of no more than ten years, no more than three years of supervised launch, and a nice of no more than twice the quantity of the criminally derived property concerned within the transaction at situation.”
The harm achieved within the transient lifetime of his enterprise outfit — even whereas understood in broad strokes by trade watchers – is fairly breathtaking. As laid out by the DOJ, Rothenberg raised and managed 4 funds between the inception of his agency, Rothenberg Ventures, in 2013 and 2016, and his felony actions started virtually instantly.
In line with the DOJ’s expenses, after closing that preliminary fund, he partially funded his personal capital dedication to the second fund by making false statements about his wealth to his financial institution whereas refinancing his house mortgage and whereas acquiring a $300,000 private mortgage, a few of which he poured within the fund.
That’s financial institution fraud. But in accordance with the DOJ, that was merely Rothenberg’s opening gambit.
The next 12 months, in 2015, Rothenberg “took extra cash in enterprise capital charges from one of many funds he was elevating and managing” and since he then “confronted a shortfall on the finish of the 12 months that he didn’t want to report back to his traders,” he discovered an unlawful workaround. Particularly, alleges the DOJ, he “engaged in a scheme to defraud a financial institution by making false statements and misrepresentations to the financial institution in an effort to receive a $four million line of credit score to pay again the fund from which he had taken extra charges.”
The concept, says the DOJ, was to “deceive his traders into believing the fund was well-managed,” which apparently labored on the time.
In fact, in actuality, Rothenberg was digging an ever greater gap for himself, suggests the DOJ. In the meantime, he seemingly had appearances to maintain up. It could possibly be why in February 2016, in accordance with the allegations laid out by the DOJ, he “engaged in a scheme to defraud an investor with respect to a $2 million funding that it believed it was making straight right into a digital actuality content material manufacturing firm working as River Studios that Rothenberg contended he wholly owned.”
The DOJ says that that as a substitute, Rothenberg used most of it for functions having nothing to do with that manufacturing firm.
Rothenberg additionally — judging by the DOJ’s report — started to throw warning to the wind, maybe as a result of he thought he would possibly get away with it or as a result of he was more and more determined.
To wit, its criticism alleges that 5 months after defrauding that first investor, in July 2016, Rothenberg “engaged in a scheme to defraud as many as 5 separate traders when he induced them to wire a complete of $1.35 million underneath the premise of investing within the untraded inventory of a privately-held software program firm.” The criticism expenses Rothenberg with “knowingly participating in a scheme to defraud one investor by representing to that group that its cash could be used to buy the software program firm’s shares. In line with the criticism, on the identical day the cash was wired, Rothenberg took the cash from the checking account designed to make the funding and despatched it to RVMC’s foremost working checking account, from which it was used for a lot of functions.”
No inventory within the software program firm was ever bought, in accordance with the DOJ’s investigation. The company says Rothenberg additionally “induced investments in his RVMC-managed funds underneath the premise he would use the cash for investments in ‘frontier edge’ applied sciences and take solely sure restricted charges for the administration of the funds.” As an alternative, he “took extra charges than to which he was entitled and invested far much less of the cash he raised than the working agreements disclosed to the traders contemplated.”
Altogether, says the DOJ, it has collected proof that Rothenberg fraudulently obtained at the least $18.eight million.
We’ve reached out to Rothenberg — who has persistently denied any wrongdoing — for remark. It isn’t the one dangerous information he has confronted recently, in any case.
Simply seven months in the past, in December, Rothenberg was ordered to pay greater than $31 million in reference to the misappropriation of investor cash referring to an SEC criticism that alleged he misappropriated hundreds of thousands of from his agency’s funds, then used the cash to help private enterprise ventures.
In October 2018, Rothenberg additionally agreed to be barred from the securities trade with a proper to reapply after 5 years.
All have been unbelievable developments in what was already a virtually unbelievable story of obvious hubris and its penalties. Rothenberg had entered the enterprise scene with a splash, touchdown a characteristic story in TechCrunch, in early 2013, and touting his connections and his youth — he was 27 on the time — as benefits he loved over older VCs who may not have a shot on the identical corporations.
Two years later, BusinessWeek dubbed him Silicon Valley’s “party animal,” as his agency turned famend within the Bay Space for “throwing bashes for entrepreneurs,” together with costly events at San Francisco’s Oracle Park baseball discipline (identified on the time as AT&T Park). Rothenberg, a self-described former math Olympian who attended Stanford earlier than getting an MBA from Harvard Enterprise Faculty, mentioned on the time, “The best way we construct a scalable community is by internet hosting numerous occasions.”
He appeared to dismiss questions on how they have been paid for, however he did inform BusinessWeek that he supplied among the earliest funding to Robinhood, the stock-trading app that was most just lately valued at $7.6 billion and whose cofounders and CEOs attended Stanford concurrently Rothenberg.
It was an auspicious begin, in brief. Alas, by the summer time of 2016, the agency’s staff have been scattering to the winds, and investigators have been starting to take notes.