Former high-flying VC Michael Rothenberg now faces criminal charges alleging 'multiple schemes to defraud his victims'

The US Attorney's office in Northern California announced the charges on Friday, after investigations by the FBI and the IRS criminal Investigations unit.
A whistleblower came forward about Michael Rothenberg's business dealings back in 2016.
In a settlement with the SEC, he was barred from the investment business for five years and a year later, ordered to pay more than $31 million in fines and disgorgement.
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Former high-flying venture capitalist Michael Rothenberg is, for the first time, facing criminal charges over allegations that he defrauded investors in his venture fund.

These new charges were announced Friday by the US Attorney's office for the Northern District of California, after investigations by the FBI and the IRS criminal investigations unit.

Rothenberg has been under fire for years over allegations that, instead of using the money he raised from investors to buy shares in startups, he found ways to funnel that money to himself or his venture firm. These new federal charges allege that he charged investors management fees above the contractual amount they agreed to; convinced investors to wire him $1.35 million to buy shares of a startup but then transferred the money elsewhere and never bought the stock, lied to a bank when applying for a loan, and other allegations.

All told, the US attorney's office says it is charging Rothenberg with 23 crimes for what it describes as "multiple schemes to defraud spanning from 2013 to 2016," including wire fraud, bank fraud, and making false statements to a bank.

These criminal charges are the lastest troubles for Rothenberg, 36, who was once considered an outlandish but rising star of Silicon Valley's venture world.

He was known for his lavish parties and over-the-top lifestyle until one day, his newly-hired CFO told employees that the company was out of cash and could not pay them, as we reported back in 2016.

That same year, a whistleblower came forward to the Securities and Exchange Commission, as Business Insider reported at the time. The SEC then asked people to speak to the FBI and the US Attorney's office, a person close to the matter told us at the time. TechCrunch and Backchannel wrote exposs.

The SEC was first to act. In a 2018 settlement with Rothenberg that accused him of "misappropriating" millions, the SEC barred him from the brokerage and investment advisory business for five years. A year later, in 2019, a federal judge ordered Rothenberg to pay more than $31 million in fees stemming from the SEC case.

Friday's charges are the first criminal charges he has faced, meaning that he may be sentenced to prison if found guilty. Each wire fraud charge carries the potential of as much as 20 years in prison plus other penalties. The bank fraud and false statements to a bank each carry a maximum of 30 years in prison and a $1 million fine, according to the US attorney's press release.

One reason why it may have taken the US attorney four years after the whistleblower came forward to announce these charges is that Rothenberg'sbusiness affairs were a complex web of interrelated companies and transactions, believes one former employee, Drew Olanoff. Olaniff is a former Techcrunch reporter who was working for one of Rothenberg's companies during that time period when it ran out of cash.

"On my way out the door, I saw it unravel. And as it unraveled it became very clear, this was extremely complicated and complicated for a reason, to hide things," Olanoff told Business Insider.

Rothenberg did not respond to Business Insider's request for comment.

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