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SEC settles 'fraudulent scheme' case against VC Michael Rothenberg

The watchdog says the VC and his firm misappropriated millions of dollars in investor money.

Rothenberg Ventures founder Mike Rothenberg
Rothenberg Ventures founder Mike Rothenberg
Russ Campbell

The Securities and Exchange Commission on Monday said it has settled a case against Michael Rothenberg, a San Francisco venture capitalist the agency says misused millions of dollars of investors' money in a "fraudulent scheme."

Rothenberg, 34, overcharged people investing in his funds, using the additional cash for his own projects, including a virtual reality production company, the SEC said in the complaint (PDF). The money was also used to pay for fancy functions and parties, the agency said.

"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 said in a statement. See below for a copy of the complaint.

Contacted by phone, Rothenberg didn't admit or deny the allegations. He declined further comment.

However, in separate legal action Monday, Rothenberg Ventures sued Silicon Valley Bank, alleging that the bank's mishandling of a $4.25 million transfer made it look like Rothenberg embezzled funds. The bank denies the accusation.

Rothenberg founded Rothenberg Ventures at age 28 and drew attention with successful investments in companies like Elon Musk's SpaceX and investment app Robinhood. Two years ago, however, Rothenberg Ventures faced accusations of wrongdoing and a series of employee departures.

According to the terms of the settlement, Rothenberg will be "barred from the brokerage and investment advisory business with a right to reapply after five years," the SEC said. Other terms still need to be approved by the US District Court, which will determine if Rothenberg Ventures will have to pay civil penalties.

"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 Enforcement Division's Asset Management Unit at the SEC.

First published Aug. 20, 1:35 p.m. PT
Update, Aug. 21 at 9:55 a.m.:
Adds background from Rothenberg suit against Silicon Valley Bank and includes SEC's complaint.

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