San Francisco Venture Capitalist Charged In Wide-Ranging Schemes to Defraud
Defendant Raised Millions for Investment in Silicon Valley Start-Ups But Allegedly Took Fees Far Exceeding What Agreements Allowed
SAN FRANCISCO – Michael Brent Rothenberg was charged in a criminal complaint with wire fraud in connection with a scheme to invest in a privately-traded software company in 2016, and in an information in connection with multiple schemes to defraud spanning from 2013 to 2016, announced United States Attorney David L. Anderson, Federal Bureau of Investigation Special Agent in Charge John F. Bennett, and Kareem Carter, Special Agent in Charge of Criminal Investigation at the Internal Revenue Service. Rothenberg made his initial appearance in federal court today before Magistrate Judge Westmore.
According to the complaint and information, Rothenberg, 36, of San Francisco, California, is alleged to have orchestrated multiple schemes to defraud his victims. Rothenberg founded a venture capital company, Rothenberg Ventures Management Company, LLC (“RVMC”), 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, and particularly companies in the field of virtual reality technologies.
The information filed today alleges that Rothenberg partially funded his capital commitment to the second of those funds by committing bank fraud. Specifically, in 2014, Rothenberg made false statements about his wealth to his bank while refinancing his home mortgage and while obtaining a $300,000 personal loan, and poured some of the ill-gotten money he obtained from the bank into the second of his funds.
In 2015, the information alleges that Rothenberg took excess money in venture capital fees from one of the funds he was raising and managing at RVMC, and therefore faced a shortfall at the end of the year that he did not wish to report to his investors. At the end of 2015, the information alleges that Rothenberg 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. In so doing, Rothenberg attempted to deceive his investors into believing the fund was well-managed and that RVMC was following the operating agreements the investors understood controlled the management of the fund.
In February 2016, according to the allegations laid out in the information, Rothenberg 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. It is alleged that, rather than using that investment at River Studios as he had represented, Rothenberg used most of it for non-River Studios purposes.
The complaint then alleges that, in July 2016, 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 RVMC’s main operating bank account, from which it was used for many purposes. The complaint alleges that no stock in the software company was ever purchased.
Finally, the information sets out allegations about a series of investors as to whom Rothenberg engaged in a scheme to defraud in 2015 and 2016 by inducing their investments in his RVMC-managed 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, Rothenberg 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.
Today’s allegations in the criminal complaint and information state that the evidence has established that since 2013 Rothenberg fraudulently obtained at least $18.8 million through his illegal conduct.
The criminal complaint unsealed today charges Rothenberg with wire fraud, in violation of 18 U.S.C. §§ 1343 and 2.
The information filed today charges Rothenberg with 23 crimes, including the one set out in the criminal complaint. For his two schemes to defraud a bank, Rothenberg is charged with two counts of bank fraud, in violation of 18 U.S.C. §§ 1344 and 2, and two counts of making a false statement in a loan application to an FDIC-insured lender, in violation of 18 U.S.C. §§ 1014 and 2. With respect to his scheme to defraud an investor in River Studios, Rothenberg is charged with three counts of wire fraud, in violation of 18 U.S.C. §§ 1343 and 2, and four counts of engaging in monetary transactions in property derived from specified unlawful activity, commonly known as money laundering, in violation of 18 U.S.C. §§ 1957 and 2. For his scheme to defraud investors in the untraded stock in a privately held software company in July 2016, Rothenberg is charged with four counts of wire fraud, in violation of 18 U.S.C. §§ 1343 and 2. Finally, for his scheme to defraud investors in his funds in 2015 and 2016, Rothenberg is charged with eight counts of wire fraud, in violation of 18 U.S.C. §§ 1343 and 2.
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. Finally, 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. However, any sentence following conviction would be imposed by the court only after consideration of the U.S. Sentencing Guidelines and the federal statute governing imposition of a sentence, 18 U.S.C. § 3553.
The charges contained in the criminal complaint and information are mere allegations. As in any criminal case, the defendant is presumed innocent unless and until proven guilty in a court of law.
Magistrate Judge Westmore ordered Rothenberg released on $250,000 bond pending the outcome of the case. Rothenberg’s next appearance is scheduled for August 27, 2020, at 10:30 a.m.
The case is being prosecuted by the Special Prosecutions Section of the U.S. Attorney’s Office. The case is being investigated by the FBI and IRS Criminal Investigations.