
An employee who exposed Rothenberg Ventures to the SEC - jtraffic
https://www.bloomberg.com/news/articles/2017-05-09/he-blew-the-whistle-on-a-silicon-valley-highflier-then-came-the-blowback
======
dmschulman
Interesting timing, I had just finished reading this Backchannel article
regarding Rothenberg Ventures from September: [https://backchannel.com/mike-
rothenbergs-vc-firm-was-young-s...](https://backchannel.com/mike-rothenbergs-
vc-firm-was-young-splashy-and-loaded-with-cash-now-it-s-all-come-crashing-
down-e76fa076c7c5#.gz51k7nld)

Just an excerpt, an example of what I'd imagine some of the unwise personal
projects regard:

"Most troublesome are questions about how Rothenberg managed investors’ money.
Specifically, in 2015 he founded a virtual reality production company called
River Studios to create virtual reality videos for the likes of Coldplay and
Björk, funding it with $5 million from Rothenberg Ventures. Many investors say
they did not know — nor was it disclosed in annual reports — that he was
founding and funding his own business with their dollars, despite the fact
that the investment was roughly 50 times the size of the seed investments the
firm normally makes."

~~~
endorphone
I'm taking a beating in another comment (it's one of those ridiculous
discussions where everyone can demonstrate how righteous they are), but I
listened to the podcast and the argument was that the management company (e.g.
not the actual funds) used _management fees_ to pay for their own investments.

Ala the frat bros owned A. A had funds B, C, and D. Investers are LPs of B, C
and D. Management fees flowed from B, C and D to A, where it was used for
nonsensical stuff.

There's nothing at all illegal about that. If a fund has a 10% of holdings
management fee, the fund has zero obligation or "fiduciary duty" to the
charged fund holders in how they use that money. They can use it on a mountain
of blow, or a room of strippers. Or they can invest in dubious investments.
Whatever. If investors don't like the returns relative to the management fees,
they redeem.

This whole story is very offputting. The individual is talking about various
_completely uncriminal_ emails that he read in podcasts, itself arguably
criminal and with profound civil liability. And that's the hero of the story?
Eh.

~~~
gregshap
I haven't listened to the podcast, but according to the backchannel article
linked above, the money came from the funds themselves

> The $5 million that went into launching River Studios came from Rothenberg
> Ventures’ second and third funds...One LP says that in a phone call with
> investors in August after Rothenberg had told them about the River Studios
> investment in an email, one grilled him on why River Studios wasn’t in the
> annual reports, and says Rothenberg responded that he was still getting
> around to the disclosures. Rothenberg’s employees also say they were kept in
> the dark. Two former employees tell Backchannel that when they asked
> Rothenberg how River Studios was funded, he told them only that there were
> outside investors. Another recalls Rothenberg saying he paid for it himself.
> Rothenberg disputes this, saying that all investors had been made aware,
> adding, “We’ve been very public about it.”

[[https://backchannel.com/mike-rothenbergs-vc-firm-was-
young-s...](https://backchannel.com/mike-rothenbergs-vc-firm-was-young-
splashy-and-loaded-with-cash-now-it-s-all-come-crashing-down-e76fa076c7c5)]

~~~
endorphone
Later information is much more vague about this, and one of the core
complaints is that he used the management fees of his funds to sponsor
companies that arguably competed with holdings of the funds - a serious
conflict of interest.

This fund was started with a ridiculous fee structure of 17.5% of total
investment upfront, and then apparently no going forward fees. Like a
"lifetime VPN" subscription, the economics don't make sense and it is a folly
arrangement for all sides.

~~~
dmschulman
Also from the Backchannel article:

"Several former Rothenberg Ventures and River Studios employees now say they
didn’t understand why River Studios was green-lit. One former employee noted
that River Studios also competed for clients and market share with at least
two of Rothenberg Ventures’ portfolio companies that were already in VR film
production, Triggar and vantage.tv. (Triggar didn’t respond to requests for
comment, and vantage.tv’s CEO Juan Santillan wrote in an email, “I don’t agree
with many of the things that were going on at RV…” but added, “RV[’s] extended
team has been great to us.”)"

------
ghc
Good for him. That's why we have whistleblower laws in the first place. Most
of us have a lot to lose by doing the right thing: damaged job prospects may
equate to a large future loss of earnings over your career. Still, history
shows plenty of people have paid (and continue to pay) a far higher price than
that.

~~~
colmvp
Yup. Whistleblowers are severely disadvantaged.

The Theranos whistleblower has had to endure about 400k in legal fees.

I also recall reading a story about two police officers (can't remember the
city) who tried to reveal corruption in their department, only to be vilified
by superiors/fellow officers, have their career trajectory torpedoed, and see
people who treated them like garbage eventually elevated in various forms of
government.

And of course, there's Snowden who basically had to flee the country to reveal
his findings, lest he suffer the consequences of prosecutorial abuse of the
Espionage Act in the United States.

~~~
smcl
For the Police whisleblower I'm not sure if it's the same one, but Adrian
Schoolcraft's[1] case was pretty awful. He was mostly documenting relatively
mundane (but still nasty) things like being given targets for the amount of
littering, jaywalking, open-container etc arrests by the superior officers.
However things took a bit of a weird turn, and he ended up with some
recordings of the Police harrassing him at his home (including them basically
abducting him under false mental health issues, and destroying what they
thought was the only mic recording them doing so) are pretty awful - This
American Life did a piece on this [2].

[1] = [https://www.nytimes.com/2015/09/30/nyregion/officer-who-
disc...](https://www.nytimes.com/2015/09/30/nyregion/officer-who-disclosed-
police-misconduct-settles-suit.html?_r=0)

[2] = [https://www.thisamericanlife.org/radio-
archives/episode/414/...](https://www.thisamericanlife.org/radio-
archives/episode/414/right-to-remain-silent)

------
pmorici
Article doesn't really support the headline. The sole argument they provide
that there was any "blowback" was that one time he brought it up in a job
interview and didn't get a call back. Hardly enough to say your career
prospects are some how wrecked because you exposed a blatant fraud.

~~~
humanrebar
It also says he was allegedly fired when the SEC cooperation was discovered.

~~~
pmorici
Is getting fired from a fraudulent company really a net negative?

~~~
nickpsecurity
Even being associated with one is. Then, being a whistleblower is a major risk
to HR since most will assume the person might publish just anything as opposed
to worst stuff. He already claims to have been rejected for a job being a
whistleblower but rejections happen for a lot of reasons.

------
tcbawo
In all seriousness, isn't it best to secure your next position before going to
the government or the investors? You have to assume that your job is over as
you know it.

------
aphextron
I have to say this isn't surprising from my personal experience with
Rothenberg. I attended their "Founders Field Day" event last year and it was
the most surreal, over the top, "Silicon Valley" thing I have ever witnessed.
They must not be in too hot of water though, as they're holding another puppy
petting/VR party in the city this Friday.

~~~
obiefernandez
Mike Rothenberg is one of the executive producers of Silicon Valley!!

------
tremon
So, where's the blowback? I feel like half of the story is missing...

~~~
mnw21cam
From the article:

> Riordan is trying to start a company that improves email security. Partly,
> he says, that’s because blowing the whistle on Rothenberg dinged his career
> prospects. After once telling a job interviewer he was a whistleblower, he
> didn’t get a call back. Still, he says, the cost was worth it. “I knew that
> to some extent I would be damaging my career,” he says. “I was just so sure
> that it was the right thing to do.”

~~~
BoorishBears
Doesn't really explain how he knows the mention of being a whistleblower is
the reason he wasn't called back.

~~~
frgtpsswrdlame
Of course not, companies let the hiring process be opaque for a reason. Common
sense would tell us that blowing the whistle is not going to endear you to
future employers.

~~~
manigandham
As an employer, whistleblowers are not something to fear unless you have
something to hide. What exactly is he going to expose if everything is legit?
Better to have honest employees than those would do otherwise without
question.

~~~
frgtpsswrdlame
>As an employer, whistleblowers are not something to fear unless you have
something to hide.

We don't let that logic slide when it comes to individual privacy and I'm not
sure we should for corporate privacy. Even a company completely on the up and
up may have privacy concerns that deter them from hiring someone like this.

~~~
manigandham
Illegal vs private is a different discussion. Some companies like
transparency, some don't, and that's fine.

Proper security protocols are probably a better model for that since everyone
is naturally curious and info tends to spread at even the most secret of
companies.

------
kwisatzh
I don't see anything coming out of this or the earlier exposes. They seem to
be doing fine, and will continue to thrive. Viva Tech-Bros!

------
chiph
> even renting out San Francisco’s AT&T Park

Now I get the opening scene in Silicon Valley Season 2 Episode 1 where they're
at the baseball stadium.

------
crusso
"That was February 2016. By July, Riordan says, he’d downloaded emails,
financial reports, and other records from the network that he says showed the
company’s namesake, Chief Executive Officer Mike Rothenberg, was using
investor money to fund other projects he owned"

That's kind of troubling, depending upon the details.

If I hire someone and he starts fishing around on the servers that he has
access to, looking to put together a case, that could easily be a violation of
trust. I could maybe even see if the SEC had contacted him and asked him for
information as an informant in something ongoing. But Riordan initiated this -
and it wasn't like the Uber example where Susan Fowler was exposing company
culture information that was more public in the first place.

Granted, Rothenberg looks pretty dirty and I have personal experience with a
CEO diverting company funds and priorities away from the supposed corporate
mission. It's no fun and I have sympathy for stopping him.

If I hire someone to do some server work, I want him to do the job I'm paying
for - not spend my money trying to build a case against me.

~~~
ivraatiems
Why are you assuming he was "fishing around?" He suspected illegal activity,
found evidence, and reported it.

I don't care how much you're paying me; if I see you punch a guy in the break
room, I'm calling the police. This is more like that than it is an employee
shirking his duties.

~~~
crusso
It wasn't punching a guy in the break room. If he was working on the web
server or something like that but turned up email and financial records, there
was digging involved.

------
endorphone
This article didn't do this person any favors.

Hired for web development, they go trawling through the network finding any
insufficiently secured material they can access to appease their sense of
justice (and have since used various emails of other people's for media
discussions to bolster their case, while ironically talking about email
security -- ala "defend against me"). Then they continue working while acting
as an agent of the government. Or such is what I take from this article.

As good as it seems that the company and "frat" brothers (always a wonderful
word in these articles to prejudice the reader) were brought down, does this
article give anyone any comfort about hiring this person?

To make it even worse (regarding the "side with criminals" nonsense), thus far
nothing criminal has even been demonstrated. For instance a core contention is
that they used management fees for separate investments. There is _nothing_
illegal about that. Investors are partners of specific funds, and management
fees are the fees _and profit to the management company_ for running that
fund. It just sounds like a shitty company shittily run, but running around
exposing various emails that were arguably criminally accessed just smells
really stinky.

~~~
BEEdwards
Just to be clear, in this case your siding with the criminals?

~~~
JoeAltmaier
Against the hypocrite isn't at all the same thing, as 'for the criminals'. Its
that 'you're with me or against me' thinking that plagues the internet lately.

~~~
frgtpsswrdlame
Where's the hypocrisy?

------
kazinator
If I found out that _someone I know_ (friend, family member, ...) were being
deceived by the company, I'd pass the info on to that person (not the
government).

Otherwise, none of my business.

Of course, unless I'm in a position where I'm legally required, like an
officer of the company, or accountant or whatever. As someone just doing in-
house development or IT work or whatever, no way.

The litmus test for whistling is: is it my business to know this information?
And if so, do I face penalties or a jail time if I don't report it?

That guy shouldn't even have been reading those e-mails, which were not for
his eyes. Of course someone might not want to hire him; he sticks his nose
where it doesn't belong.

Suppose the company hadn't done anything wrong? Will he reveal in future
interviews, "I was an _almost_ -whistleblower at my former employer; working a
simple web developer, I got into private executive memos that weren't CC'd to
me and luckily found no evidence of wrongdoing".

~~~
antihero
I think you've kind of missed the point of ethics entirely.

~~~
kazinator
Reading confidential e-mails is unethical, full stop.

Unethical actions which uncover crime are still unethical.

That is why we have warrants, and wiretap laws and all that; how information
is obtained matters.

"Any way to nail a criminal" is end-justifies-the-means questionable ethics.

