Typical Silicon Valley Venture Capitalist Arrested. Feds Investigating EVERY Sandhill Road VC!
In a case which should be repeated up and down Palo Alto's Sandhill Road, A 36-year-old San Francisco man has been charged with 19 felony counts of wire fraud and other crimes, accused in connection with several alleged investment schemes from 2013 to 2016, according to a joint statement from the FBI, the U.S. Attorney's Office and the Internal Revenue Service on Friday.
According to the complaint, Michael Brent Rothenberg is alleged to have raised millions of dollars to invest in Silicon Valley start-up companies, but allegedly took much higher fees than those to which he formally agreed. Federal officials said Rothenberg also committed bank fraud with alleged schemes to obtain money to make up for shortfalls in one of the funds he managed.
Federal officials allege that, since 2013, Rothenberg fraudulently obtained at least $18.8 million through illegal conduct.
Rothenberg made his initial appearance in U.S. District Court Friday.
Rothenberg founded a venture capital company, Rothenberg Ventures Management Company, LLC that he used between 2013 and 2016 to raise and manage four annual funds whose purpose was to invest in Silicon Valley start-up companies, mostly those pursuing virtual reality technology.
The complaint alleges Rothenberg partially funded his money commitment to the second of those funds by committing bank fraud when, in 2014, made false statements about his wealth to his bank while refinancing his home mortgage. Federal officials allege that Rothenberg, while obtaining a $300,000 personal loan, poured some of the ill-gotten money he obtained from the bank into that second fund.
Federal officials also contend that, in 2015 Rothenberg took excessive venture capital fees from one of the funds he was managing at his Rothenberg Ventures Management Company, creating a shortfall in that fund he did didn't want his investors to know about. Rothenberg then allegedly engaged in a scheme to defraud a bank by making false statements and misrepresentations to that bank to obtain a $4 million line of credit to pay back the fund from which he had taken excess fees.
In February 2016, officials said, Rothenberg allegedly engaged in a scheme to defraud an investor who believed was investing in a Rothenberg-owned virtual reality content production company, when in fact most of that money is alleged to have gone somewhere else.
Overall, in connections to the above and other allegations, Rothenberg faces two counts of bank fraud, two counts of making a false statement in a loan application to an FDIC-insured lender, 11 counts of wire fraud and four counts of money laundering.
Each of the wire fraud charges carries maximum statutory penalties of up to 20 years in prison, not more than three years supervised release, and a $250,000 fine. The two bank fraud charges and the two false statement 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. The money laundering charges carry a penalty not more than 10 years in prison, not more than three years of supervised release, and fines.
The Special Prosecutions Section of the U.S. Attorney's Office is prosecuting the case, which is being investigated by the FBI and IRS Criminal Investigations.