On top of the world one day, facing multiple legal battles the next. Michael Rothenberg, whose extravagant self-promotion and lavish Bay Area parties made headlines over the last five years, has agreed to a five-year ban from working in the brokerage and investment advisory business where he made his name.
Rothenberg, 34, a 2013 graduate of Harvard Business School and founder of advisory firm Rothenberg Ventures LLC, ran afoul of the Securities and Exchange Commission for what the SEC said Monday (August 20) was a pattern of overcharging investors to fund personal projects, including “sending millions of dollars to his own virtual reality production company” and misappropriating millions of dollars — 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.” He has been under investigation for about two years, the SEC said.
“Venture capital investors provide important funding for startups 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.
‘THOUGHT LEADER’ NOW OUT OF WORK
Rothenberg founded Rothenberg Ventures in 2012 while still a student at Harvard Business School, famously couch-surfing across the country to raise $5 million from company founders and CEOs for his first fund. On LinkedIn, he claims that Rothenberg Ventures today manages $50 million across four funds focusing on “frontier technology” startups, built on technology between the R&D stage and mass-market adoption. “We believe frontier tech startups are the fastest-growing and most valuable startups in the world,” Rothenberg writes on his LinkedIn profile. “We are proud investors in exciting companies such as Robinhood, SpaceX, Matterport, Revel Systems, Patreon, Gusto, and Jaunt.” According to SEC filings, Rothenberg’s funds peaked with nearly 200 investors and more than $64 million in assets.
In 2015, Rothenberg launched the River Accelerator to help build early-stage frontier technology startups. He also founded River Studios, “a thought leader in VR/AR, to help jump-start the Virtual Reality & Augmented Reality ecosystem through content production,” according to his LinkedIn profile. “Mike dreams of a world where every student has access to a VR headset and software with the world’s library of education accessible in VR.” The SEC’s complaint was based on allegations that Rothenberg marketed his advisory firm as uniquely positioned to identify millennial entrepreneurs and invest in frontier technology companies, then defrauded those investors to pay for extravagant promotional events and parties.
Rothenberg’s settlement with the SEC comes without an admission or denial of guilt. It is subject to approval by the federal district court for the Northern District of California, which would determine the amount of any penalties, guided by litigation from the SEC. But should the court give its go-ahead, that would only be one fewer headache for Rothenberg. Last October he lost a decision before the Superior Court of California against his former CFO for $166,000 in expenses; earlier that month he was hit with a class action lawsuit from former employees alleging, among other things, that his firm routinely failed to pay contract workers and compensate his former chief of staff and other hourly workers for overtime. That case is still pending.
BIG PARTIES, BIG PENALTY
Among Rothenberg’s most extravagant known expenditures were renting out luxury suites at Bay Area sports venues — and in one case, renting an entire venue, the San Francisco Giants’ AT&T Park. He hired a race car driver and brought her and her car to promotional events. He booked a Super Bowl suite to court prospective contributors and he co-produced a video for the band Coldplay. He cultivated, and earned, a reputation as Silicon Valley’s “party animal.”
During all this, however, legal issues mounted — in another lawsuit filed this year, he is accused of sharing a former employee’s Social Security number in a public blog — and Rothenberg now has agreed to step away from the VC world. He can apply to be reinstated to work again in the brokerage and investment advisory businesses in five years, according to the SEC.