
SEC Charges Rothenberg Ventures in Fraudulent Scheme - ciscoriordan
https://www.sec.gov/news/press-release/2018-160
======
JumpCrisscross
"Without admitting or denying the allegations in the SEC’s complaint,
Rothenberg and Rothenberg Ventures agreed to settle the charges. The
settlement is subject to approval by the federal district court for the
Northern District of California which would determine the amount of
disgorgement and civil money penalties. Rothenberg also agreed to be barred
from the brokerage and investment advisory business with a right to reapply
after five years. An SEC order imposing the bar will be instituted following
court approval of the settlement" [1].

Besides blowing investors' money on lavish staff events, which is a dick move
but not necessarily illegal, Rothenberg also invested "$5 million from
Rothenberg Ventures' second and third funds in his own startup company, River
Studios" [2].

[1] [https://www.sec.gov/news/press-
release/2018-160](https://www.sec.gov/news/press-release/2018-160)

[2]
[https://en.wikipedia.org/wiki/Rothenberg_Ventures](https://en.wikipedia.org/wiki/Rothenberg_Ventures)

~~~
wmf
_blowing investors ' money on lavish staff events, which is a dick move but
not necessarily illegal_

I'm not an expert on this topic, but if a limited partner agrees to something
like "2 and 20" fees doesn't that imply that the other 98% of the money is to
be invested and not used for expenses? 2% management fee on $64M assets is
only $1.2M which is pretty small considering the size of staff they had.

It's less bad if the investors agreed to high fees, but it could still be
embezzlement if the money was spent on personal stuff.

~~~
aml183
There is something called fund expenses. A GP can allocate part of the fund to
pay towards expenses they deem to be fund expenses. For example, the audit
would be classified as a fund expense. Most funds have an outside
administration company that handles the money and approves/rejects these
decisions.

------
tlrobinson
The "0 lawsuits filed" stat on his website now seems a bit foreshadowing

    
    
        150 Investments Made
        175 Limited Partners
        5 Years of Experience
        0 Lawsuits Filed
    

[http://mikerothenberg.com/](http://mikerothenberg.com/)

Maybe he can post a "Days since last SEC action" sign in the office.

~~~
backuptape8
From the page's title:

> The Actual Mike is not quite the virtual Gatsby

Jay Gatsby was a criminal. Of course he says he's "not quite the virtual
Gatsby." But he's still essentially likening himself to a fictional criminal.

~~~
CalChris
_Jay Gatsby was a criminal._ That's gray. It's hinted and perhaps likely that
he was a bootlegger. As that was legal before prohibition and after, it's hard
for me to morally judge him a criminal what with his character never having
been charged and convicted of any crime.

~~~
paulddraper
But legally...he was a criminal (probably).

Just like people who drove 80mph were criminals during the Emergency Highway
Energy Conversation Act, but they weren't before or after that.

~~~
CalChris
No, legally people who are convicted of crimes are criminals.

~~~
paulddraper
Hm, then there should be a name for someone who commits a criminal act.

------
AndrewKemendo
I had two meetings with Rothenberg in 2016 before their troubles started and
the whole vibe of the place seemed off.

The people who asked me to come in were "partners" who I had good
conversations with, but when I came in it was only interns who took the
meetings. Now, that's not crazy in the valley, but what is crazy is that the
interns had no connection with the partner, had no idea the meeting was going
to happen, no background on our company and absolutely no technical or market
knowledge around Augmented Reality, which is what they claimed to be experts
in. This was in both cases.

After the blow up at the end of 2016, I received an email from yet another
"partner" in 2017 asking to meet up. I asked them if anything had
fundamentally changed and this was the response:

"In many ways, everything has fundamentally changed haha.

If you're available though, I'd love for you and your co-founder to join us
for a Warriors game next week. We're still waiting on the other series to wrap
up, but we expect to have a home game Monday night. We have a box at Oracle
Arena, and it would be great if you guys could come along."

So clearly they had no problems throwing money around. Seems nothing changed.

Really sad honestly.

------
ajiang
_Without admitting or denying the allegations in the SEC’s complaint,
Rothenberg and Rothenberg Ventures agreed to settle the charges. The
settlement is subject to approval by the federal district court for the
Northern District of California which would determine the amount of
disgorgement and civil money penalties. Rothenberg also agreed to be barred
from the brokerage and investment advisory business with a right to reapply
after five years. An SEC order imposing the bar will be instituted following
court approval of the settlement._

Fascinating, but not surprising, that it settled right away. I am curious
whether the settlement details would be made available in any way.

~~~
ciscoriordan
Whistleblower here. It took 25 months from when I reported the fraud until the
settlement.

~~~
function_seven
I hope you were well compensated for going out on that limb. Thanks.

~~~
kirillseva
the whistleblower gets some significant % of settlement

------
rahimnathwani
I'm curious to know:

\- Does the firm and/or the individual have enough money? i.e. will the
settlement, once paid, make investors whole?

\- Why does stealing $7 three times get someone a life sentence, but stealing
$7MM once get zero jail time?

~~~
rayiner
> \- Why does stealing $7 three times get someone a life sentence, but
> stealing $7MM once get zero jail time?

It doesn't--stealing $7 isn't a felony, and no three-strikes state predicates
a life sentence on three non-felonies.

But to address your general point: there are two different kinds of things.
Criminal law isn't just about the effect, but the culpability of the offender.
Is the offender a "bad person?" How bad is she? The outcome of killing a
person can be anything from no crime at all to murder depending on the mental
state of the person who did it--accidentally, recklessly, or intentionally.

"Stealing" is easy to prove and easy to understand as something intrinsically
wrong, so we draw a harsh, bright-line rule against it. Financial "fraud,"
however, is much more complicated. With fraud, the actual transfer of money is
voluntary. The crime instead relates to the _circumstances_ surrounding the
transfer. What representations were made, etc.? In this case, the $7 million
was "excess fees." What exactly is "excess fees" and why are they such a clear
violation of social norms that the person belongs in prison?

That's why we have civil actions. Civil actions address a broad range of
conduct that we want to discourage, but which isn't so obviously intrinsically
immoral that we want to send people to jail over it (even when they involve
lot of money). As folks correctly point out below, the underlying conduct
_could_ support criminal prosecutions, which may still come. But the SEC's
civil suit serves a different function.

~~~
alex_young
Old news at this point, but there are probably plenty of people serving life
for small theft in CA on the old law:

[https://www.sfgate.com/news/article/Stealing-one-slice-of-
pi...](https://www.sfgate.com/news/article/Stealing-one-slice-of-pizza-
results-in-life-3150629.php?utm_campaign)

~~~
rayiner
California used to invoke the three strikes law where the first two crimes
were serious felonies, and the third was anything. But not three misdemeanors.

------
aphextron
I went to Founders Field day in 2016, and I have to say from the vibe of that
event this doesn't surprise me at all. It was literally like being in an
episode of Silicon Valley.

I do worry what this means for their incubator program though. They've been
one of the few funds willing to throw a lot of dumb money at VR projects that
just sound cool, and I'm all for that.

------
ilaksh
I think if you steal millions of dollars you should go to prison. And a fraud
like this should have the same type of punishment as other types of theft.

~~~
hashrate
> I think if you steal millions of dollars you should go to prison

Not in corporate America

------
philip1209
Can somebody explain whether this can still lead to criminal prosecution?

As I recall from the Theranos stuff - the SEC reached a similar settlement
with Elizabeth quickly [1]. My understanding is that they want to protect the
markets and get bad actors banned without years of trials. But then, the DOJ
came in filed separate charges that will likely take much longer to prosecute,
but have the potential for more severe punishment such as prison term.

So - is this a sign that more significant trouble is coming for Rothenberg?

[1] [https://www.sec.gov/news/press-
release/2018-41](https://www.sec.gov/news/press-release/2018-41)

[2] [https://www.justice.gov/usao-ndca/pr/theranos-founder-and-
fo...](https://www.justice.gov/usao-ndca/pr/theranos-founder-and-former-chief-
operating-officer-charged-alleged-wire-fraud-schemes)

~~~
pm90
SEC cannot prosecute criminal charges. What they can do is build a case and
hand it over to DoJ/FBI for actual criminal prosecution (which as you said can
take years).

The taint of an SEC investigation is enough to scare away most investors from
the entity though. Which is really helpful.

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jakelarkin
I wonder if this precocious racket will pay out over Rothenberg's lifetime vs.
just banking his pedigree and network on some boring low risk career track.
He's currently ahead a few million but his reputation is toast.

~~~
harryh
I keep a file on my Dropbox titled "Where Are They Now?" for exactly this
purpose. Whenever I get curious about this sort of thing I add their name, a
brief description, and the date to a list.

I don't just do it for "bad" people, but for all sorts of people that become
notable for one reason or another. For example I (somewhat) recently added
David Hogg & Emma González to the file.

I'm hoping that it will prove to be interesting reading in 10-20 years.

~~~
owens99
Please share this in 5-10 years :)

Always interested in this kind of analysis. Even if it's just your
opinion/anecdotes.

------
gumby
They seemed like clowns to me (including calling to ask us to come pitch,
setting up a time, and then forgetting about it when we showed up). Seeing
them at industry events they didn't seem like they knew what they were doing.
So how did they get LPs?

~~~
patio11
_So how did they get LPs?_

I don't know what the pitch was prior to "I turned $100k invested in Robinhood
into $20 million of paper gains" but I think I have a pretty good idea of the
conversation after.

------
person_of_color
Sounds fun! Anyone move to IC engineer to tech VC without being part of a
startup exit?

------
dang
There's also
[https://news.ycombinator.com/item?id=17804063](https://news.ycombinator.com/item?id=17804063),
which has a bit more background info.

------
tomc1985
Did he really leave lorem ipsum text under his testimonials?

Cause google translate returns garbage... blah blah blah "Nam mourning for the
Playstation notebook" ... what?

------
ProAm
7 million sounds like a drop to settle for, plus likely a small fine.

~~~
pwaai
yeah I've pretty much given up on the justice system.

if you have money regardless of how you obtained it, the law always favor
those with capital for the most part. Unless you try to fight back against
government's monopoly on violence....drug traffiking being a major
competition, it makes sense why harsh sentences are handed out for drug
dealers while white collar criminals that inflict damage to millions of people
all over the world gets a slap on the wrist.

~~~
smittywerben
> government's monopoly on violence

Can I get a source on this?

~~~
kevin_b_er
This is a sort of tenant of the modern state if you look at it a certain way.
Ultimately the threat of violence is invested in the state to ensure the law
is followed.

It is not a pitchfork and torch mob that should come after you should you
appear to have committed a serious crime, but rather the government's police
agencies that will come to arrest you, very physically if need be.

See also
[https://en.wikipedia.org/wiki/Monopoly_on_violence](https://en.wikipedia.org/wiki/Monopoly_on_violence)

~~~
smittywerben
I see, monopoly on violence is a legitimate concept in the political/public
sciences. I think "monopoly" has several definitions depending on the field.

Thanks for the clarification + source.

------
jhabdas
%s/Rothenberg/Rothstein/g

