- The SEC, in a recent legal filing, alleges that former Silicon Valley VC Mike Rothenberg misappropriated roughly $19 million in investor funds.
- The filing comes a year after Rothenberg settled SEC charges that he diverted investor funds, in a deal that barred Rothenberg from the investment and brokerage advisory business for five years.
- According to the new SEC filing, Rothenberg misappropriated funds even as he was negotiating with the agency about the initial allegations.
- The SEC wants the court to order Rothenberg to pay more than $30 million, including a $9 million civil penalty.
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Nearly a year after the Securities and Exchange Commission said it was charging a once high-flying venture capitalist, Michael Rothenberg, for “misappropriating” his investors’ money, the SEC says it has more evidence against him.
The SEC now says that Rothenberg fraudulently enriched himself by $18.8 million from his investors, up from the $7 million figure it originally published.
The higher figure is, in part, because the SEC says he continued to divert funds to himself and his private business interests even as he was being investigated.
“The very month he was informed of the SEC investigation, Rothenberg raised, and misappropriated, $1.3 million,” the SEC alleges in a court document filed on July 31.
The commission goes on to allege that “even as he negotiated settlement with the SEC for Securities Fraud Liability, Rothenberg misappropriated millions of dollars.”
As the agency was combing through his financial records, it said it discovered that Rothenberg arranged for the 2013 venture fund to sell an interest in Robinhood for $5.4 million in June 12, 2018. Robinhood is the popular no-fee stock trading app startup that was recently valued at $7 billion.
But, the SEC alleges, instead of distributing the $5.4 million to the investors of the 2013 fund, he transferred the money into other business interests including, it says, using $136,000 to lease a Golden State Warriors luxury suite. Rothenberg then leased that suite to others raising $56,o00 that way, the documents allege.
He put $16,o00 in to his personal account, donated $30,000 to the Stanford University Athletics Department and “spent thousands of dollars on ballet tickets,” the SEC says.
Eventually, he transferred $732,000 to the 2013 Fund, the SEC says, pointing out that this was $4.7 million shy of the $5.4 million from the Robinhood stake he sold.
The SEC also paints of a picture of a VC who was charging his 2013 investors excessive fees” and then moved on to simply transferring money to himself or to his own business ventures, rather than buying equity stakes in startups, as a venture fund is designed to do:
“A detailed analysis by the SEC’s expert forensic accountant demonstrates that Rothenberg ultimately misappropriated approximately $18.8 million that rightfully belonged to the Funds, nearly all of which was (i) transferred to Rothenberg personally (approximately $3.8 million), (ii) utilized to fund other entities under Rothenberg’s control (approximately $8.8 million), and (iii) used to pay RVMC (Rothenberg Ventures LLC) expenses over and above the management and administrative fees to which RVMC was entitled under the terms of the management agreements (approximately $5.7 million).”
A year ago, the SEC’s case against Rothenberg centered on allegations that he charged about $7 million in “excess fees” to his investors.
The SEC alleged Rothenberg spent this not just on his personal business ventures but also “to pay for private parties and events at high-end resorts and Bay Area sporting arenas,” the SEC said in a press release at the time.
In addition to more than doubling the disgorgement award to nearly $19 million, the SEC also asked the court to fine Rothenberg more than $3.6 million in interest and to tack another $9 million in punitive fees “reflecting his fraud, deceit, and reckless disregard of regulatory requirements.”
Rothenberg was 34 when he first agreed to a settlement deal with the SEC last year and he did not admit or deny the SEC’s allegations in the settlement.
Rothenberg Ventures was a high-flying venture firm known for its over-the-top parties and spending — as well as its young, charismatic founder, Mike Rothenberg.
The firm had over $50 million under management when it publicly imploded in 2016.
It ran out of operating money, and all its employees except its lawyer were told they were put on “unpaid leave”
It later admitted to its investors that the SEC was investigating, according to an email obtained by Business Insider Multiple employees filed wage complaints against the company with the state of California, several people told Business Insider.
Business Insider talked to several former employees of the company who described their experiences with Rothenberg using words like “charming” and “convincing,” “vengeful,” “a messed-up human being,” “megalomaniac,” “master manipulator” and “lack of empathy.”
Rothenberg did not immediately responded to a request for comment. His lawyer of record as of February told Business Insider that he no longer represents Rothenberg.
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