With DOJ charges, former VC Mike Rothenberg could now be facing serious jail time

While some in Silicon Valley might prefer to forget about investor Mike Rothenberg roughly four years after his young venture firm began to implode, his story is still being written, and the latest chapter doesn't bode well for the 36-year-old.

While Rothenberg earlier tangled with the Securities and Exchange Commission and lost, it was a civil matter, if one that could haunt him for the rest of his life.

Now, the U.S. Department of Justice has brought two criminal wire fraud charges against him, charges that he made two false statements to a bank and money laundering charges, all of which could result in a very long time in prison depending on how things play out.

How long, exactly? The DOJ says the the two bank fraud charges and the two false statements to a bank charges "each carry a maximum of 30 years in prison, not more than five years supervised release, and a $1,000,000 fine," while the money laundering charges "carry a penalty of imprisonment of not more than ten years, not more than three years of supervised release, and a fine of not more than twice the amount of the criminally derived property involved in the transaction at issue."

The damage done in the brief life of Rothenberg's venture outfit -- even while understood in broad strokes by industry watchers -- is rather breathtaking. As laid out by the DOJ, Rothenberg raised and managed four funds from the time he founded his firm, Rothenberg Ventures, in 2012, through 2016, and his criminal activities began almost immediately.

According to the DOJ's charges, after closing his initial fund, he partially funded his own capital commitment to a second fund by making false statements to his bank about his wealth while refinancing his home mortgage and obtaining a $300,000 personal loan, some of which he poured in the fund.

That's bank fraud. Yet according to the DOJ, that was merely Rothenberg's opening gambit.

The following year, in 2015, Rothenberg "took excess money in venture capital fees from one of the funds he was raising and managing" and because he then "faced a shortfall at the end of the year that he did not wish to report to his investors," he found an illegal workaround. Specifically, alleges the DOJ, he "engaged in a scheme to defraud a bank by making false statements and misrepresentations to the bank in order to obtain a $4 million line of credit to pay back the fund from which he had taken excess fees."

The idea, says the DOJ, was to "deceive his investors into believing the fund was well-managed," which apparently worked at the time.

Of course, in reality, Rothenberg was digging an ever bigger hole for himself, suggests the DOJ. Meanwhile, he seemingly had appearances to keep up. It could be why in February 2016, according to the allegations laid out by the DOJ, he "engaged in a scheme to defraud an investor with respect to a $2 million investment that it believed it was making directly into a virtual reality content production company operating as River Studios that Rothenberg contended he wholly owned."

The DOJ says that instead, Rothenberg used most of it for purposes having nothing to do with that production company.

Judging by the DOJ's report, Rothenberg continued to throw caution to the wind, perhaps because he thought he might get away with it or because he was increasingly desperate.

To wit, its complaint alleges that in July 2016, five months after defrauding that first investor, Rothenberg "engaged in a scheme to defraud as many as five separate investors when he induced them to wire a total of $1.35 million under the premise of investing in the untraded stock of a privately-held software company." The complaint charges Rothenberg with "knowingly engaging in a scheme to defraud one investor by representing to that organization that its money would be used to purchase the software company’s shares. According to the complaint, on the same day the money was wired, Rothenberg took the money from the bank account designed to make the investment and sent it to [Rothenberg Ventures'] main operating bank account, from which it was used for many purposes."

No stock in the software company was ever purchased, according to the DOJ's investigation. The agency says Rothenberg also "induced investments in his [funds] under the premise he would use the money for investments in 'frontier edge' technologies and take only certain limited fees for the management of the funds." Instead, he "took more fees than to which he was entitled and invested far less of the money he raised than the operating agreements disclosed to the investors contemplated."

Altogether, says the DOJ, it has collected evidence that Rothenberg fraudulently obtained at least $18.8 million.

We've reached out to Rothenberg -- who has consistently denied any wrongdoing -- for comment. It isn't the only bad news he has faced lately, in any case.

In January of this year, Rothenberg was ordered to pay more than $31 million relating to an SEC complaint that alleged he misappropriated millions of dollars from his firm's funds, then used the money to support personal business ventures.

In October 2018, Rothenberg also agreed to be barred from the securities industry with a right to reapply after five years.

All have been incredible developments in what was already a nearly unbelievable story of hubris and its consequences. Rothenberg had entered the venture scene with a splash, landing a feature story in TechCrunch in early 2013, and touting his connections and his youth -- he was 28 at the time -- as advantages he enjoyed over older VCs who might not have a shot at the same companies.

Two years later, BusinessWeek dubbed him Silicon Valley's "party animal," as his firm became renowned in the Bay Area for "throwing bashes for entrepreneurs," including expensive parties at San Francisco's Oracle Park baseball field (known at the time as AT&T Park). Rothenberg, a self-described former math Olympian who attended Stanford before getting an MBA from Harvard Business School, said at the time, “The way we build a scalable network is by hosting a lot of events.”

He seemed to dismiss questions about how they were paid for, but he did tell BusinessWeek that he provided some of the earliest funding to Robinhood, the stock-trading app that was most recently valued at $7.6 billion and whose co-founders and CEOs attended Stanford at the same time as Rothenberg.

It was an auspicious start, in short. Alas, by the summer of 2016, the firm's employees were scattering to the winds, and investigators were beginning to take note.