Besides blowing investors' money on lavish staff events, which is a dick move but not necessarily illegal, Rothenberg also invested "$5 million from Rothenberg Ventures' second and third funds in his own startup company, River Studios" [2].
I'm not an expert on this topic, but if a limited partner agrees to something like "2 and 20" fees doesn't that imply that the other 98% of the money is to be invested and not used for expenses? 2% management fee on $64M assets is only $1.2M which is pretty small considering the size of staff they had.
It's less bad if the investors agreed to high fees, but it could still be embezzlement if the money was spent on personal stuff.
Source: former hedge fund trader
Can you talk a bit about where the line is between this being merely unethical as opposed to outright illegal?
But if you authorize the company to spend money on something which is in itself illegal (cocaine or weed for the parties, hookers instead of strippers), that's illegal. And if you effectively direct the money to your own benefit (pay for your house's landscaping, new pool, pet grooming bill) that's not legal (among other things, it counts as taxable income and I bet you forget to pay on that).
> Defendants at all relevant times were investment advisers within the meaning of Section 202(a)(11) of the Advisers Act [15 U.S.C. § 80b-2(a)(11)].
My personal guess: that law makes various actions (self-dealing, lying about what investment funds are being used for, non-arms-length transactions, etc) crimes instead of civil torts.
Plus, you know, just plain fraud.
150 Investments Made
175 Limited Partners
5 Years of Experience
0 Lawsuits Filed
Maybe he can post a "Days since last SEC action" sign in the office.
> The Actual Mike is not quite the virtual Gatsby
Jay Gatsby was a criminal. Of course he says he's "not quite the virtual Gatsby." But he's still essentially likening himself to a fictional criminal.
And Steve Jobs likened himself to a pirate (along with half my grade school).
The people who asked me to come in were "partners" who I had good conversations with, but when I came in it was only interns who took the meetings. Now, that's not crazy in the valley, but what is crazy is that the interns had no connection with the partner, had no idea the meeting was going to happen, no background on our company and absolutely no technical or market knowledge around Augmented Reality, which is what they claimed to be experts in. This was in both cases.
After the blow up at the end of 2016, I received an email from yet another "partner" in 2017 asking to meet up. I asked them if anything had fundamentally changed and this was the response:
"In many ways, everything has fundamentally changed haha.
If you're available though, I'd love for you and your co-founder to join us for a Warriors game next week. We're still waiting on the other series to wrap up, but we expect to have a home game Monday night. We have a box at Oracle Arena, and it would be great if you guys could come along."
So clearly they had no problems throwing money around. Seems nothing changed.
Really sad honestly.
Fascinating, but not surprising, that it settled right away. I am curious whether the settlement details would be made available in any way.
- Does the firm and/or the individual have enough money? i.e. will the settlement, once paid, make investors whole?
- Why does stealing $7 three times get someone a life sentence, but stealing $7MM once get zero jail time?
It doesn't--stealing $7 isn't a felony, and no three-strikes state predicates a life sentence on three non-felonies.
But to address your general point: there are two different kinds of things. Criminal law isn't just about the effect, but the culpability of the offender. Is the offender a "bad person?" How bad is she? The outcome of killing a person can be anything from no crime at all to murder depending on the mental state of the person who did it--accidentally, recklessly, or intentionally.
"Stealing" is easy to prove and easy to understand as something intrinsically wrong, so we draw a harsh, bright-line rule against it. Financial "fraud," however, is much more complicated. With fraud, the actual transfer of money is voluntary. The crime instead relates to the circumstances surrounding the transfer. What representations were made, etc.? In this case, the $7 million was "excess fees." What exactly is "excess fees" and why are they such a clear violation of social norms that the person belongs in prison?
That's why we have civil actions. Civil actions address a broad range of conduct that we want to discourage, but which isn't so obviously intrinsically immoral that we want to send people to jail over it (even when they involve lot of money). As folks correctly point out below, the underlying conduct could support criminal prosecutions, which may still come. But the SEC's civil suit serves a different function.
https://www.sfgate.com/news/article/Stealing-one-slice-of-pi...
I had misunderstood this point. I thought the settlement was like the 'plea bargain' I've seen on American TV shows, i.e. that the settlement meant that would be no criminal charges.
Thanks for the thoughtful explanation.
Stay tuned. This may not be over yet.
(A good comparison is the Fyre Festival, which led to both civil and criminal charges: https://www.cbsnews.com/news/fyre-festival-founder-billy-mcf... . )
Edit: Theranos was another where the SEC acted first, then the criminal case came next. https://www.vox.com/2018/6/15/17469332/theranos-elizabeth-ho...
For example, SEC investigated Bernie Madoff multiple times, but the it was the FBI that decided to act, based on a criminal complaint.
Sentence: 150 years.
(Though until 2013, Indiana actually had a no minimum.)
I do worry what this means for their incubator program though. They've been one of the few funds willing to throw a lot of dumb money at VR projects that just sound cool, and I'm all for that.
Not in corporate America
As I recall from the Theranos stuff - the SEC reached a similar settlement with Elizabeth quickly [1]. My understanding is that they want to protect the markets and get bad actors banned without years of trials. But then, the DOJ came in filed separate charges that will likely take much longer to prosecute, but have the potential for more severe punishment such as prison term.
So - is this a sign that more significant trouble is coming for Rothenberg?
[1] https://www.sec.gov/news/press-release/2018-41
[2] https://www.justice.gov/usao-ndca/pr/theranos-founder-and-fo...
The taint of an SEC investigation is enough to scare away most investors from the entity though. Which is really helpful.
I don't just do it for "bad" people, but for all sorts of people that become notable for one reason or another. For example I (somewhat) recently added David Hogg & Emma González to the file.
I'm hoping that it will prove to be interesting reading in 10-20 years.
Always interested in this kind of analysis. Even if it's just your opinion/anecdotes.
Cause google translate returns garbage... blah blah blah "Nam mourning for the Playstation notebook" ... what?
How much does that cost?
if you have money regardless of how you obtained it, the law always favor those with capital for the most part. Unless you try to fight back against government's monopoly on violence....drug traffiking being a major competition, it makes sense why harsh sentences are handed out for drug dealers while white collar criminals that inflict damage to millions of people all over the world gets a slap on the wrist.
The SEC can't bring criminal charges. They levy fines, usually limited to repaying the money one stole plus their administrative expenses, ban people from the industry and refer cases for criminal prosecution. Their point is to stop damage, not necessary punish it.
The criminal process is more selective about what it attacks. It's where justice is delivered. As a result of due process, it's also much slower.
I remember similar complaints in the months between the civil penalties for Holmes et al and the announcement of criminal charges. These things take time. Sometimes, the bar for criminality isn't met. That said, the most damaging parts of this to Rothenberg are (a) the bad publicity and (b) being barred from the industry. The latter is probably much worse than $7 million.
I just hate this mentality. Listen, I know things have been rough and defeatism is a natural way to feel in that context. But "giving up" is one of the ways things end up like this. Don't give up. Fight for justice.