SEC Settles With VC Parodied by ‘Silicon Valley’

(Bloomberg) -- A venture capital fund manager, whose lavish parties were parodied by HBO’s “Silicon Valley,” agreed to settle allegations from federal securities regulators that his firm overcharged investors to fund personal projects, including sending millions of dollars to his own virtual reality production company.

Michael Rothenberg, 34, and his Rothenberg Ventures allegedly pocketed about $7 million from about 200 investors from 2015 to 2017, according to a statement Monday from the U.S. Securities and Exchange Commission. The SEC alleges that Rothenberg collected fees that weren’t owed to him, misappropriated cash from successful investments and concealed his conduct by creating sham transactions.

“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,” C. Dabney O’Riordan, co-head of the SEC enforcement division’s asset management unit, said in a statement.

Rothenberg, without admitting or denying wrongdoing, agreed to be barred from the securities industry for at least five years. The settlement is subject to to approval by the federal district court for the Northern District of California, which would determine financial penalties.

“Mr. Rothenberg takes great pride in the portfolio of innovative startup companies he has selected for investors,” Marc Fagel, Rothenberg’s attorney, wrote in an email. “But he has determined it would best serve his investors to bring this matter to a close and has thus decided to resolve the SEC action without admitting or denying the allegations.”

Even by excessive Silicon Valley standards, Rothenberg stood out. His venture firm employed several dozen people, while comparable-sized firms have just two or three on staff. And his parties, which he said helped him establish his brand, were legendary. In a span of a year or two, he rented out the San Francisco Giants’ AT&T Park, hired the band Third Eye Blind to play at a San Francisco concert venue, hosted hot air balloon rides, and purchased suites for a Beyonce performance and the Golden State Warriors basketball games. He also hosted happy hours that featured cuddling with puppies.

Rothenberg also allegedly misled investors that his well-known parties were self-funded. The most notorious was the one parodied in the HBO comedy show. Called Founder Field Day, the firm rented a ballpark each spring. Startup founders took batting practice on the field and got free massages. “Silicon Valley” shot a similar-looking scene for the second-season premiere, which aired shortly before Rothenberg’s 2015 ballpark outing.

The firm, which briefly rebranded to Frontier Technology Venture Capital, has invested in roughly 100 startups, including Robinhood Markets Inc., which was recently valued at $5.6 billion.

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