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Famed ‘Millennial Venture Firm’ Charged With Fraud

The founder of Rothenberg Ventures has settled with the SEC after allegedly spending investors’ capital on a race-car team, luxury seats to watch the Golden State Warriors, and his own startups.

Venture capitalist Michael Rothenberg — who sold investors on funding millennial entrepreneurs — and his firm allegedly misappropriated about $7 million to fund one young founder: Rothenberg himself.   

The Securities and Exchange Commission said August 20 that it charged Rothenberg, 34, and his advisory company Rothenberg Ventures with collecting excess fees to bankroll his lifestyle and endeavors. Illicit expenditures allegedly include leased suites at the Golden State Warriors’ home arena for several seasons and at Super Bowl 50, financing a racing car and crew, and private parties at high-end resorts, according to the SEC’s complaint filed the same day.

Rothenberg and his firm settled the charges without admitting or denying the SEC’s allegations. As part of the deal, he agreed to be banned from the investment advisory and brokerage industries for at least five years, after which he can reapply.

Neither Rothenberg nor Rothenberg Ventures immediately returned phone calls seeking comment.

The founder is stepping down from his eponymous venture firm, according to TechCrunch

In an article Monday, the Silicon Valley publication attributed the following statement to Rothenberg’s spokespeople: “Mr. Rothenberg takes great pride in the portfolio of innovative start-up companies he has selected for investors. But he has determined it would best serve his investors to bring this matter to a close, and has thus decided to resolve the SEC action without admitting or denying the allegations.”

The SEC notified the founder of its investigation in July 2016, leading to the firm’s brief rebranding as Frontier Technology Venture Capital. 

[II Deep Dive: Luck and Reputation Matter in Venture Capital. Skill Doesn’t.]

That same summer, the complaint alleged, Rothenberg and his staff members began soliciting investors for a pooled co-investment fund.  

At the founder’s instruction, “these employees impressed upon the prospective investors that time was of the essence in order to participate in the co-fund,” the SEC said in the complaint. “Rothenberg suggested to these employees that any prospective investor that wanted to participate in the co-fund immediately wire their money to a bank account RVMC [Rothenberg Ventures Management Company] established for the purported purpose of capitalizing the co-fund.”

One client apparently did just that. Less than an hour after receiving Rothenberg’s pitch via email, the investor committed $1 million and wired it the following morning, according to the complaint.

“That very same day, defendants misappropriated the money by transferring the co-fund investor’s $1 million from the co-fund account to RVMC’s bank account,” the SEC alleged in the document. Half of the money then went into accounts for an existing closed-end VC fund and Rothenberg’s personal accelerator project, River Studios, according to the regulator's allegations.

Several weeks later, the investor allegedly demanded its $1 million back, as did others who had heeded Rothenberg’s urgent call for co-investment capital. 

It would be nearly a year before the client’s $1 million was returned, the SEC alleged in the document. 

“Venture capital investors provide important funding for start-ups but there are risks, including potential harm to investors from unscrupulous managers who defraud them, as we allege Rothenberg did in this case,” said C. Dabney O’Riordan, co-chief of the SEC enforcement division’s asset management unit, in the SEC’s statement on the settlement.

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