Tech ven­ture cap­i­tal­ist faces fraud charges

San Francisco Chronicle - - BUSINESS REPORT - By Chase Dife­li­cianto­nio

A tech ven­ture cap­i­tal­ist’s fi­nan­cial trou­bles spilled over into fed­eral crim­i­nal court Fri­day with the un­seal­ing of felony fraud charges against the founder of Rothen­berg Ven­tures Man­age­ment Co., Michael Rothen­berg.

Pros­e­cu­tors charged Rothen­berg, 36, of San Francisco with 23 fraud of­fenses, al­leg­ing he set out to mis­lead in­vestors and banks, il­le­gally us­ing their cash for his per­sonal gain.

If con­victed, Rothen­berg could face decades in pri­son. He did not re­spond to an emailed re­quest for com­ment.

Rothen­berg raised four an­nual funds from 2013 to 2016 to in­vest in Sil­i­con Val­ley star­tups, with an eye on the vir­tual re­al­ity in­dus­try, ac­cord­ing to a state­ment from the U.S. At­tor­ney’s Of­fice in San Francisco.

Be­gin­ning in 2013, Rothen­berg de­frauded in­vestors and banks of $18.8 mil­lion, ac­cord­ing

to fed­eral pros­e­cu­tors.

The charges are the crim­i­nal side of a U.S. Se­cu­ri­ties and Ex­change Com­mis­sion in­ves­ti­ga­tion that cul­mi­nated in De­cem­ber when a fed­eral judge or­dered Rothen­berg to pay back the $18.8 mil­lion with $3.6 mil­lion in in­ter­est plus a $9 mil­lion civil penalty.

He had pre­vi­ously agreed in 2018 to be barred from the se­cu­ri­ties in­dus­try for five years as part of the ne­go­ti­a­tions with the SEC; he nei­ther ad­mit­ted nor de­nied that he had vi­o­lated se­cu­ri­ties laws.

Ac­cord­ing to the SEC, Rothen­berg used money from the funds he raised to run per­sonal busi­ness ven­tures he claimed were self­funded, as well as to pay for lav­ish pri­vate par­ties and events in­clud­ing the lease of a pri­vate suite at Golden State War­riors games.

Rothen­berg used a va­ri­ety of meth­ods to siphon off mil­lions, ac­cord­ing to the crim­i­nal com­plaint.

In 2014, he lied about his wealth to his bank while re­fi­nanc­ing his home mort­gage, the gov­ern­ment said, ob­tain­ing a $300,000 per­sonal loan and di­vert­ing some of the money into one of his ven­ture funds.

The next year, the gov­ern­ment said, Rothen­berg pulled in fees for the man­age­ment of his funds over and above what he was owed by in­vestors, mak­ing up the dif­fer­ence at the end of the year by wran­gling a fraud­u­lent bank loan of $4 mil­lion.

In 2016, Rothen­berg per­suaded an in­vestor to hand over $2 mil­lion to in­vest in a vir­tual re­al­ity com­pany called River Stu­dios he said he owned, but he used the money for other ven­tures, ac­cord­ing to the charges. Later that year, Rothen­berg per­suaded five in­vestors to wire him $1.3 mil­lion to in­vest in the un­traded stock of a pri­vately owned soft­ware com­pany, but he in­stead fun­neled the money into his ven­ture fund’s ac­counts, ac­cord­ing to the fed­eral court fil­ing.

Rothen­berg has been in­volved in other law­suits. For­mer Rothen­berg Ven­tures ex­ec­u­tives have also brought suit against Rothen­berg pre­vi­ously, al­leg­ing he did not cover busi­ness ex­penses.

The com­pany’s one­time chief fi­nan­cial of­fi­cer David Haase won his case in 2017 in San Francisco Su­pe­rior Court in a judg­ment that re­quired Rothen­berg to pay him $166,000 for the ex­penses and losses he in­curred while work­ing at RVMC, as well as at­tor­ney fees for the suit and other costs.

Michael Rothen­berg’s name is not on the lat­est state reg­is­tra­tion doc­u­ments for Rothen­berg Ven­tures.

Lea Suzuki / The Chron­i­cle 2015

Staffers at Rothen­berg Ven­tures, which fo­cused on vir­tual re­al­ity, wear head­sets in 2015. The firm’s founder, not the staffers, faces fed­eral fraud charges.

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