As we first reported last month, Mike Rothenberg, the beleaguered founder of the San Francisco-based venture firm Rothenberg Ventures, has been involved in an ongoing SEC inquiry into possibly deceptive financial practices within his firm that include wire fraud, bank fraud, breach of fiduciary duty and retaliation against a lower-level employee who was fired and allegedly threatened with a lawsuit after bringing these allegations to the SEC.
We have since learned of several details in the investigation.
According to our sources, Rothenberg is being investigated for several money transfers to and from his personal account to that of River Studios, a virtual reality production house funded by Rothenberg in June of last year, and River Enterprises, a subsidiary of Rothenberg Ventures.
Rothenberg also ordered the firm’s bank, Silicon Valley Bank, to wire money on several occasions, reportedly without his limited partners’ knowledge, including wiring himself $1.2 million in what he called salary and a $5.2 million loan to the firm that was initiated on Christmas Eve of last year, according to documents shown to TechCrunch.
Rothenberg incrementally wired the $1.2 million to himself in amounts ranging from $200,000 up to $600,000 from the accounts of several Rothenberg entities on January 4, 2016, shortly after the loan went through from Silicon Valley Bank. While we don’t know how much of a salary Rothenberg was entitled to, this seems an unusual process to getting it.
According to other VCs, a typical salary for someone in Rothenberg’s position would normally be closer to $100,000 to $150,000 for a small startup firm like his, and the total spending for all operational expenses would be 2 percent of the fund. Rothenberg Ventures was under management for $50 million, meaning the total spent per year would typically be closer to $1 million for all expenses, including the founder’s salary.
The inquiry into the firm partly explains a mass exodus of employees, though many further accuse Rothenberg of financial mismanagement so extreme that several people are still waiting to get paid by the firm for back wages.
Indeed, one employee, David Haase, is currently suing the firm for breach of contract, saying it owes him more than $109,000 in business expenses that he accrued on a personal American Express card at Rothenberg’s direction. Another former senior executive said Rothenberg owes him at least $40,000 in back wages. A third employee has filed with the California Division of Labor Standards Enforcement for $70,000 of unpaid wages from the firm.
Both the SEC and Silicon Valley Bank declined to comment on the details of the SEC inquiry, but at least two former Rothenberg employees, including one senior-level executive with financial knowledge of the firm, have been in touch with the SEC over these allegations.
Rothenberg Ventures has also attracted the attention of the FBI and the U.S. Attorney’s General, says one source close to the matter, who has been asked to speak with both institutions about the accusations.
Very worth noting: No formal charges have been filed as of this writing. All SEC investigations are conducted privately, and an investigation does not mean that the agency will file a case in federal court or bring an administrative action.
Rothenberg Ventures has recently been rebranded as Frontier Tech Ventures. Meanwhile, Rothenberg himself has updated his LinkedIn profile to reflect his work status as founder of Frontier Tech Ventures.
Rothenberg did not respond to queries from TechCrunch about the outfit’s new brand, possible criminal investigation or financial dealings, but the name change would seem an attempt to distance the outfit from both the SEC’s questions and the company’s now damaged public reputation. It would also seem to reflect a behind-the-scenes effort to save the firm. According to numerous sources, investors are still open to the possibility of continuing to work with the firm, though they do not want Rothenberg involved further. Meanwhile, say these same sources, Rothenberg is angling for ways to step aside, rather than step down.
The clock is ticking, say these same investors, who are growing more frustrated with the situation by the day, yet are still hoping to avoid a legal battle with Rothenberg.