- A Federal judge has ordered former venture capitalist Mike Rothenberg to pay more than $31 million after he was charged by the SEC for “misappropriating” millions of dollars from his firm’s funds.
- Rothenberg settled with the SEC last year, a deal in which he admitted liability and agreed to pay disgorgement, aka, the repayment of “ill-gotten gains,” according to new court documents.
- Rothenberg opposed the sums of money that SEC was seeking but the judge sided with the SEC.
- Rotenberg was a former darling of the VC world, rising to notoriety after raising his first investment fund while living out of a suitcase and then gaining a reputation for extravagant parties.
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A federal judge has ordered former venture capitalist Mike Rothenberg to pay more than $31 million after the SEC alleged he “misappropriated money” from his firm’s funds, according to new court documents.
The SEC charged Rothenberg with violating securities laws last year and he settled, striking a deal in October, 2018, in which he admitted liability and agreed to pay disgorgement, aka the repayment of “ill-gotten gains,” according to the new court documents filed in US District Court of Northern California on Friday.
The SEC was seeking nearly $18.8 million in disgorgement, plus another nearly $3.7 million in interest. The court also granted the SEC’s request for an additional $9 million in fines.
Rothenberg opposed those damages, arguing that he didn’t misappropriate the funds, didn’t misspend them, didn’t personally benefit from the alleged misappropriation and that the fund’s investors made money on the fund.
But the judge sided with the SEC, saying that Rothenberg had already admitted liability in the settlement agreement, and that he failed to provide evidence to support his arguments.
“The SEC, however, points to evidence that Rothenberg altered his accounting records and created fake documents to conceal his actions on multiple occasions. … This evidence, coupled with Rothenberg’s ongoing inability or unwillingness to take responsibility for his actions and recognize the wrongfulness of his conduct, demonstrates that a $9 million civil penalty is appropriate,” Judge Jon S. Tiger wrote.
The SEC was not seeking damages against the company, now known as RVMC, because it is no longer controlled by Rothenberg, the court documents said.
Rothenberg Ventures was the talk of Silicon Valley back in the early part of the decade, after its young founder, the charismatic Mike Rothenberg, raised his first fund while living out of his suitcase, couch surfing. He eventually had nearly 200 investors and more than $64 million in assets, the SEC said.
He became known for extravagant parties and a big lifestyle. In 2016 Techcrunch reported that he enjoyed tickets to the Golden Globes, executive producing a video for Coldplay, a suite at the Super Bowl, and a $2,000-a-month membership with a private-jet service.
In 2016, the firm had run out of money and put all of its employees except its lawyer on unpaid leave, Backchannel reported and Business Insider confirmed with people knowledgeable of the matter.
Whistleblowers went to the authorities and the SEC investigated, hiring a forensic account. When it charged him, the SEC claimed that, over a three-year period, “Rothenberg and his firm misappropriated millions of dollars from the funds, including an estimated $7 million of excess fees, which Rothenberg used to support personal business ventures he claimed were self-funded and to pay for private parties and events at high-end resorts and Bay Area sporting arenas.”
The 2018 SEC settlement also barred Rothenberg from the brokerage and investment advisory business for five years, after which he will have a right to apply again.
Rothenberg did not respond to a request for comment.