Former Silicon Valley Executive Misappropriated $19 Million in Investor Funds According to SEC

While unfortunate, fraud can occur in nearly any business. Funds designated for specific business use can be misappropriated and unnoticed for months or even years given the circumstances. Not even the higher-ups in Silicon Valley are immune to fraudulent activity, as recent Securities and Exchange Commission (SEC) findings in a case against a former venture capitalist show millions of dollars in fraudulent activity.

Though it has been a year since the SEC initially brought charges against former Silicon Valley venture capitalist Michael Rothenberg for misappropriating money from his investors, the SEC now says it has even more evidence against him. According to the report, Rothenberg fraudulently enriched himself by $18.8 million from his investors. Initially, it was alleged that he had only taken $7 million.

According to the SEC, the increased amount stems from Rothenberg continuing to divert funds to himself and private business interests during the initial investigation. In a court document filed on July 31, the SEC stated, “The very month he was informed of the SEC investigation, Rothenberg raised, and misappropriated, $1.3 million.” The commission goes on to allege that, “even as he negotiated a settlement with the SEC for Securities Fraud Liability, Rothenberg misappropriated millions of dollars.”

The SEC discovered Rothenberg arranged for the 2013 venture fund to sell an interest in the popular no-fee stock trading app startup Robinhood for $5.4 million in June of 2018. Robinhood has recently been valued at $7 billion.

The SEC alleges that instead of distributing the $5.4 million to the 2013 fund’s investors, Rothenberg transferred the money into other business interests, including using $136,000 to lease a Golden State Warriors luxury suite, which he then leased out to others, raising up to $56,000. Rothenberg also put $16,000 in his personal account, donated $30,000 to the Stanford University Athletics Department and even, “spent thousands of dollars on ballet tickets,” according to the SEC.

Eventually, Rothenberg would transfer $732,000 to the 2013 Fund, the SEC says, pointing out that this was $4.7 million shy of the $5.4 million collected from the original Robinhood stake he sold.

Just a year prior, the SEC’s case against Rothenberg centered on allegations he charged $7 million in “excess fees” to his investors. It was alleged Rothenberg spent the funds not just on personal interests, but also “to pay for private parties and events at high-end resorts and Bay Area sporting arenas,” according to the SEC.

Rothenberg’s startup company, Rothenberg Ventures, was a high-flying venture firm known for its over-the-top parties, spending, and its young, charismatic founder, Mike Rothenberg. The firm had over $50 million under management when it publicly imploded in 2016. It ran out of operating money and all employees except its lawyer were told they were put on “unpaid leave.”

Houston Fraud Attorneys

Most types of fraud are intentional, but fraud also occurs through reckless representations. Fraud is also sometimes referred to as “fraudulent misrepresentation” or “fraudulent inducement.” Allegations of fraud are extremely serious. If you believe your business could be the victim of fraudulent activity, contact the experienced fraud attorneys at Feldman and Feldman today.

New Law Could Prevent Crypto-Currency Fraud

The word “fraud” usually conjures up ideas of identity theft, writing bad checks, or selling a misrepresented item. However the reality is new types of fraud are constantly occurring in inventive ways. One of the most recent types of fraud is crypto-currency fraud; with the increasing interest in crypto-currencies, fraud is rising in this area. A new law aims to prevent crypto-currency fraud in Texas.

House Bill No. 4371 is relatively brief compared to other bills, but it could have huge implications for Texans. The bill, which was recently introduced to the Texas Legislature, would create new regulations for crypto-currency transactions. Specifically, the bill would require the identification of any individuals looking to send crypto-currency payment. This means anyone receiving crypto-currency would be responsible for verifying the identity of the sender.

This requirement might not seem like much, but it’s actually incredibly powerful. Imagine the login credentials for your bank account get stolen and the thief uses it to transfer money out of your account to another account. Sounds like a nightmare, but there are laws and procedures in place to identify, investigate and prosecute this crime. The same cannot currently be said of crypto-currency. Because it’s an extremely young form of currency, lawmakers have yet to catch up with the protections necessary to keep users safe from fraud when using crypto-currency as a payment option.

Getting Help After Fraud

While the new bill could help make crypto-currency safer, the reality is fraud still occurs. Businesses can be particularly susceptible to fraud, which can have monumental consequences. Business fraud occurs anytime an individual or company intentionally falsifies records or perpetrates lies with the intent to deceive. What makes fraud particularly devastating is the volume of victims involved. While victims of fraud might feel helpless, they can seek to protect themselves and pursue justice by filing a lawsuit.

Houston Fraud Attorneys

Many victims of fraud do not come forward because they are embarrassed, but there is no reason to put any blame on yourself. The Houston fraud attorneys at Feldman & Feldman can work with you to investigate the situation and file a lawsuit against the deceptive party to obtain compensation for the money lost and damages caused by the fraud. If you’ve been a victim of fraud, no matter what type, the Houston fraud attorneys at Feldman & Feldman are equipped to investigate your claim and pursue compensation. Contact us today to schedule a consultation.

Most Common Types of Fraud

Most people do things to protect themselves and their property. Homeowners lock their doors at night and insure their valuables. Unfortunately, very few people protect themselves from fraud, and with the rise of the Internet and digital software, fraud is getting easier to commit. Some of the most common types of fraud that the experienced fraud lawyers at Feldman & Feldman handle include:

  • Real Estate Fraud – While most real estate transactions are legitimate, there a number of types of fraud that can be associated with real estate. Both the purchaser and the seller can commit fraud, so it’s important for anyone entering into a real estate contract to completely understand the terms of the transaction. If one or more parties isn’t being transparent, it could be a sign of fraud.
  • Investment Fraud – More commonly known as a ponzi scheme or pyramid scheme, investment fraud occurs when an individual uses the funds from new investors to pay returns to previous investors. Perpetrators of this type of fraud use the financial investments of others as their own personal finances, without any intention of using the funds in a business that could generate returns.
  • Payroll Fraud – Small businesses are much more susceptible to payroll fraud than larger businesses. Payroll fraud occurs when a person is stealing money under the guise of the legitimate expense of paying employees. It is important for small business owners to always have access to their finances in order to prevent bookkeepers, accountants, and other individuals from wielding too much control over the company’s money without meaningful oversight.
  • Healthcare Fraud – Healthcare frauds can be perpetrated by pharmaceutical or medical devices companies, doctors, hospitals, and insurance companies, among others. Oftentimes one party will be billed for services or equipment that was unnecessary or never performed.
  • Fake Charities – Some people will solicit donations under the guise of a fake nonprofit organization or charity in order to commit fraud. It is always important for potential donors to make sure charities are IRS-approved nonprofits. Fake charities can be more prevalent after a natural disaster, when individuals are seeking to profit off of others looking to be helpful.

The Realities of Fraud

Although there are many types of fraud, fraud is defined as the misrepresentation of facts made to another party, with knowledge of the falsehood, for the purpose of inducing the other party to act. To put simply, fraud occurs when someone lies in order to entice another party to perform an act or consent to an agreement. Fraud can happen anytime and victims often suffer huge financial losses.

Experienced Fraud Lawyers

At Feldman & Feldman, our experienced fraud lawyers help fraud victims protect their rights and pursue compensation. If you believe you were a victim of fraud, contact us today. We can investigate your situation and help you protect your best interests.