SEC Charges Technology Fund Adviser, Founder in Fraudulent Scheme
Litigation Release No. 24367 / December 6, 2018
Securities and Exchange Commission v. Michael B. Rothenberg, Civil Action No. 3:18-cv-05080 (N.D. Cal., filed August 20, 2018)
The Securities and Exchange Commission charged the founder of San Francisco-based venture capital funds and his investment advisory firm with overcharging investors to fund personal projects, including sending millions of dollars to his own virtual reality production company.
The SEC's complaint alleges that Michael B. Rothenberg, 34, marketed his advisory firm, Rothenberg Ventures LLC, as uniquely positioned to identify millennial entrepreneurs and invest in "frontier technology" companies. According to SEC filings, Rothenberg's funds had nearly 200 investors and more than $64 million in assets. The SEC's complaint alleges 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 SEC's complaint alleges Rothenberg and Rothenberg Ventures violated Sections 206(1), 206(2), and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. Without admitting or denying the allegations, Rothenberg and Rothenberg Ventures agreed to settle the charges. The settlement is subject to approval by the federal district court for the Northern District of California which would determine the amount of disgorgement and civil money penalties. Rothenberg also agreed to be barred from the brokerage and investment advisory business with a right to reapply after five years. An SEC order imposing the bar will be instituted following court approval of the settlement.
The SEC's investigation was conducted by Eric Brooks, Michael Foley, and Ellen Chen, and was supervised by Jeremy Pendrey of the Enforcement Division's Asset Management Unit in the San Francisco Regional Office. The SEC's litigation to determine the amount of disgorgement, prejudgment interest, and penalties, will be led by Barrett Atwood and Andrew Hefty of the San Francisco office.