"Without admitting or denying the allegations in the SEC’s complaint, 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" [1].
Besides blowing investors' money on lavish staff events, which is a dick move but not necessarily illegal, Rothenberg also invested "$5 million from Rothenberg Ventures' second and third funds in his own startup company, River Studios" [2].
blowing investors' money on lavish staff events, which is a dick move but not necessarily illegal
I'm not an expert on this topic, but if a limited partner agrees to something like "2 and 20" fees doesn't that imply that the other 98% of the money is to be invested and not used for expenses? 2% management fee on $64M assets is only $1.2M which is pretty small considering the size of staff they had.
It's less bad if the investors agreed to high fees, but it could still be embezzlement if the money was spent on personal stuff.
I had two meetings with Rothenberg in 2016 before their troubles started and the whole vibe of the place seemed off.
The people who asked me to come in were "partners" who I had good conversations with, but when I came in it was only interns who took the meetings. Now, that's not crazy in the valley, but what is crazy is that the interns had no connection with the partner, had no idea the meeting was going to happen, no background on our company and absolutely no technical or market knowledge around Augmented Reality, which is what they claimed to be experts in. This was in both cases.
After the blow up at the end of 2016, I received an email from yet another "partner" in 2017 asking to meet up. I asked them if anything had fundamentally changed and this was the response:
"In many ways, everything has fundamentally changed haha.
If you're available though, I'd love for you and your co-founder to join us for a Warriors game next week. We're still waiting on the other series to wrap up, but we expect to have a home game Monday night. We have a box at Oracle Arena, and it would be great if you guys could come along."
So clearly they had no problems throwing money around. Seems nothing changed.
Without admitting or denying the allegations in the SEC’s complaint, 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.
Fascinating, but not surprising, that it settled right away. I am curious whether the settlement details would be made available in any way.
> - Why does stealing $7 three times get someone a life sentence, but stealing $7MM once get zero jail time?
It doesn't--stealing $7 isn't a felony, and no three-strikes state predicates a life sentence on three non-felonies.
But to address your general point: there are two different kinds of things. Criminal law isn't just about the effect, but the culpability of the offender. Is the offender a "bad person?" How bad is she? The outcome of killing a person can be anything from no crime at all to murder depending on the mental state of the person who did it--accidentally, recklessly, or intentionally.
"Stealing" is easy to prove and easy to understand as something intrinsically wrong, so we draw a harsh, bright-line rule against it. Financial "fraud," however, is much more complicated. With fraud, the actual transfer of money is voluntary. The crime instead relates to the circumstances surrounding the transfer. What representations were made, etc.? In this case, the $7 million was "excess fees." What exactly is "excess fees" and why are they such a clear violation of social norms that the person belongs in prison?
That's why we have civil actions. Civil actions address a broad range of conduct that we want to discourage, but which isn't so obviously intrinsically immoral that we want to send people to jail over it (even when they involve lot of money). As folks correctly point out below, the underlying conduct could support criminal prosecutions, which may still come. But the SEC's civil suit serves a different function.
The SEC only has authority to levy civil fines. They issue a fine, and then hand the case over to the US Attorney's Office (and often state attorney generals' offices), which then build a criminal case.
I went to Founders Field day in 2016, and I have to say from the vibe of that event this doesn't surprise me at all. It was literally like being in an episode of Silicon Valley.
I do worry what this means for their incubator program though. They've been one of the few funds willing to throw a lot of dumb money at VR projects that just sound cool, and I'm all for that.
I think if you steal millions of dollars you should go to prison. And a fraud like this should have the same type of punishment as other types of theft.
Can somebody explain whether this can still lead to criminal prosecution?
As I recall from the Theranos stuff - the SEC reached a similar settlement with Elizabeth quickly [1]. My understanding is that they want to protect the markets and get bad actors banned without years of trials. But then, the DOJ came in filed separate charges that will likely take much longer to prosecute, but have the potential for more severe punishment such as prison term.
So - is this a sign that more significant trouble is coming for Rothenberg?
SEC cannot prosecute criminal charges. What they can do is build a case and hand it over to DoJ/FBI for actual criminal prosecution (which as you said can take years).
The taint of an SEC investigation is enough to scare away most investors from the entity though. Which is really helpful.
I wonder if this precocious racket will pay out over Rothenberg's lifetime vs. just banking his pedigree and network on some boring low risk career track. He's currently ahead a few million but his reputation is toast.
I keep a file on my Dropbox titled "Where Are They Now?" for exactly this purpose. Whenever I get curious about this sort of thing I add their name, a brief description, and the date to a list.
I don't just do it for "bad" people, but for all sorts of people that become notable for one reason or another. For example I (somewhat) recently added David Hogg & Emma González to the file.
I'm hoping that it will prove to be interesting reading in 10-20 years.
They seemed like clowns to me (including calling to ask us to come pitch, setting up a time, and then forgetting about it when we showed up). Seeing them at industry events they didn't seem like they knew what they were doing. So how did they get LPs?
I don't know what the pitch was prior to "I turned $100k invested in Robinhood into $20 million of paper gains" but I think I have a pretty good idea of the conversation after.
Read The Chickenshit Club. Basically, after Enron and Arthur Anderson, Congress and the Courts worked to neuter the ability of the SEC and the DoJ to really punish these guys. Combine that with people in those offices not wanting to go too hard, lest they not be able to get jobs with the very law firms they're going against after, and you have a recipe for government not really caring about what business is doing.
"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."
yeah I've pretty much given up on the justice system.
if you have money regardless of how you obtained it, the law always favor those with capital for the most part. Unless you try to fight back against government's monopoly on violence....drug traffiking being a major competition, it makes sense why harsh sentences are handed out for drug dealers while white collar criminals that inflict damage to millions of people all over the world gets a slap on the wrist.
JumpCrisscross|7 years ago
Besides blowing investors' money on lavish staff events, which is a dick move but not necessarily illegal, Rothenberg also invested "$5 million from Rothenberg Ventures' second and third funds in his own startup company, River Studios" [2].
[1] https://www.sec.gov/news/press-release/2018-160
[2] https://en.wikipedia.org/wiki/Rothenberg_Ventures
wmf|7 years ago
I'm not an expert on this topic, but if a limited partner agrees to something like "2 and 20" fees doesn't that imply that the other 98% of the money is to be invested and not used for expenses? 2% management fee on $64M assets is only $1.2M which is pretty small considering the size of staff they had.
It's less bad if the investors agreed to high fees, but it could still be embezzlement if the money was spent on personal stuff.
throwawaymath|7 years ago
Can you talk a bit about where the line is between this being merely unethical as opposed to outright illegal?
unknown|7 years ago
[deleted]
mfringel|7 years ago
tlrobinson|7 years ago
Maybe he can post a "Days since last SEC action" sign in the office.
backuptape8|7 years ago
> The Actual Mike is not quite the virtual Gatsby
Jay Gatsby was a criminal. Of course he says he's "not quite the virtual Gatsby." But he's still essentially likening himself to a fictional criminal.
AndrewKemendo|7 years ago
The people who asked me to come in were "partners" who I had good conversations with, but when I came in it was only interns who took the meetings. Now, that's not crazy in the valley, but what is crazy is that the interns had no connection with the partner, had no idea the meeting was going to happen, no background on our company and absolutely no technical or market knowledge around Augmented Reality, which is what they claimed to be experts in. This was in both cases.
After the blow up at the end of 2016, I received an email from yet another "partner" in 2017 asking to meet up. I asked them if anything had fundamentally changed and this was the response:
"In many ways, everything has fundamentally changed haha.
If you're available though, I'd love for you and your co-founder to join us for a Warriors game next week. We're still waiting on the other series to wrap up, but we expect to have a home game Monday night. We have a box at Oracle Arena, and it would be great if you guys could come along."
So clearly they had no problems throwing money around. Seems nothing changed.
Really sad honestly.
ajiang|7 years ago
Fascinating, but not surprising, that it settled right away. I am curious whether the settlement details would be made available in any way.
ciscoriordan|7 years ago
rahimnathwani|7 years ago
- Does the firm and/or the individual have enough money? i.e. will the settlement, once paid, make investors whole?
- Why does stealing $7 three times get someone a life sentence, but stealing $7MM once get zero jail time?
rayiner|7 years ago
It doesn't--stealing $7 isn't a felony, and no three-strikes state predicates a life sentence on three non-felonies.
But to address your general point: there are two different kinds of things. Criminal law isn't just about the effect, but the culpability of the offender. Is the offender a "bad person?" How bad is she? The outcome of killing a person can be anything from no crime at all to murder depending on the mental state of the person who did it--accidentally, recklessly, or intentionally.
"Stealing" is easy to prove and easy to understand as something intrinsically wrong, so we draw a harsh, bright-line rule against it. Financial "fraud," however, is much more complicated. With fraud, the actual transfer of money is voluntary. The crime instead relates to the circumstances surrounding the transfer. What representations were made, etc.? In this case, the $7 million was "excess fees." What exactly is "excess fees" and why are they such a clear violation of social norms that the person belongs in prison?
That's why we have civil actions. Civil actions address a broad range of conduct that we want to discourage, but which isn't so obviously intrinsically immoral that we want to send people to jail over it (even when they involve lot of money). As folks correctly point out below, the underlying conduct could support criminal prosecutions, which may still come. But the SEC's civil suit serves a different function.
slapshot|7 years ago
Stay tuned. This may not be over yet.
(A good comparison is the Fyre Festival, which led to both civil and criminal charges: https://www.cbsnews.com/news/fyre-festival-founder-billy-mcf... . )
Edit: Theranos was another where the SEC acted first, then the criminal case came next. https://www.vox.com/2018/6/15/17469332/theranos-elizabeth-ho...
paulddraper|7 years ago
(Though until 2013, Indiana actually had a no minimum.)
unknown|7 years ago
[deleted]
aphextron|7 years ago
I do worry what this means for their incubator program though. They've been one of the few funds willing to throw a lot of dumb money at VR projects that just sound cool, and I'm all for that.
ilaksh|7 years ago
hashrate|7 years ago
Not in corporate America
philip1209|7 years ago
As I recall from the Theranos stuff - the SEC reached a similar settlement with Elizabeth quickly [1]. My understanding is that they want to protect the markets and get bad actors banned without years of trials. But then, the DOJ came in filed separate charges that will likely take much longer to prosecute, but have the potential for more severe punishment such as prison term.
So - is this a sign that more significant trouble is coming for Rothenberg?
[1] https://www.sec.gov/news/press-release/2018-41
[2] https://www.justice.gov/usao-ndca/pr/theranos-founder-and-fo...
pm90|7 years ago
The taint of an SEC investigation is enough to scare away most investors from the entity though. Which is really helpful.
jakelarkin|7 years ago
harryh|7 years ago
I don't just do it for "bad" people, but for all sorts of people that become notable for one reason or another. For example I (somewhat) recently added David Hogg & Emma González to the file.
I'm hoping that it will prove to be interesting reading in 10-20 years.
gumby|7 years ago
patio11|7 years ago
I don't know what the pitch was prior to "I turned $100k invested in Robinhood into $20 million of paper gains" but I think I have a pretty good idea of the conversation after.
sulam|7 years ago
person_of_color|7 years ago
dang|7 years ago
tomc1985|7 years ago
Cause google translate returns garbage... blah blah blah "Nam mourning for the Playstation notebook" ... what?
ProAm|7 years ago
s73v3r_|7 years ago
Freestyler_3|7 years ago
How much does that cost?
pwaai|7 years ago
if you have money regardless of how you obtained it, the law always favor those with capital for the most part. Unless you try to fight back against government's monopoly on violence....drug traffiking being a major competition, it makes sense why harsh sentences are handed out for drug dealers while white collar criminals that inflict damage to millions of people all over the world gets a slap on the wrist.
jhabdas|7 years ago