WEBVTT - Meet the Whistleblower Behind a Silicon Valley Meltdown 0:00:00.600 --> 0:00:03.120 Decrypted is brought to you by red Hat, whose broad 0:00:03.160 --> 0:00:06.520 portfolio of open source technologies for the enterprise helps you 0:00:06.559 --> 0:00:08.760 get from where you are to where you want to be. 0:00:09.560 --> 0:00:12.879 Red Hat the open technology to help you realize your vision. 0:00:13.320 --> 0:00:16.079 Learn more at red hat dot com slash open tech. 0:00:19.280 --> 0:00:22.680 Just over a year ago, Francisco Reordan was a twenty 0:00:22.680 --> 0:00:25.760 seven year old software engineer, and he joined a venture 0:00:25.800 --> 0:00:30.960 capital firm called Rothenberg Ventures. The company's founder, Mike Rothenberg, 0:00:31.120 --> 0:00:35.159 was a young, charismatic Stanford University grad, and he was 0:00:35.280 --> 0:00:41.040 known around Silicon Valley for throwing these extravagant parties. Francisco 0:00:41.120 --> 0:00:44.080 had heard about his new employer's reputation, partly from a 0:00:44.080 --> 0:00:48.239 skeptical story I wrote for Business Week back in At 0:00:48.240 --> 0:00:51.040 the time, Francisco didn't think much of it. It made 0:00:51.040 --> 0:00:53.840 me think it was a little bit risky, but um, 0:00:53.880 --> 0:00:56.760 I still thought the company was making good investments based 0:00:56.800 --> 0:01:01.160 on their portfolio, so I said, rush those concerns aside 0:01:01.680 --> 0:01:06.200 and in retrospect. Uh, I shouldn't have done that. I 0:01:06.240 --> 0:01:11.040 shouldn't have done that. Francisco says this because soon after 0:01:11.080 --> 0:01:15.480 he joined, he started noticing some unusual things, things that 0:01:15.560 --> 0:01:19.000 were raising his suspicions. The more he dug around, the 0:01:19.040 --> 0:01:21.480 more he found. In just a few months in he 0:01:21.560 --> 0:01:24.720 discovered something he thought was bad, maybe even against the law, 0:01:25.400 --> 0:01:27.800 something that bothered him enough to take the very serious 0:01:27.800 --> 0:01:34.320 step of secretly reporting it to government regulators. Yeah. I mean, 0:01:34.400 --> 0:01:37.520 the internal debate was what will people think of me 0:01:37.600 --> 0:01:40.360 for doing this? I felt, I'm pretty sure it was 0:01:40.360 --> 0:01:41.880 the right thing to do, but you know, I thought 0:01:41.880 --> 0:01:44.480 about what are the consequences to me personally if I 0:01:44.520 --> 0:01:49.320 love the whistle? A week after Francisco filled out an 0:01:49.360 --> 0:01:53.120 online form on the website of the SEC short for 0:01:53.160 --> 0:01:57.080 the Securities and Exchange Commission, a lawyer from the Commission 0:01:57.120 --> 0:02:00.720 got in touch with him. From there, Prince Cisco became 0:02:00.800 --> 0:02:04.360 something of a double agent, providing the government information about 0:02:04.360 --> 0:02:08.480 his employer. Francisco's actions set in motion a series of 0:02:08.560 --> 0:02:11.800 events that ultimately brought down one of the venture capital 0:02:11.840 --> 0:02:16.520 industries aspiring stars. In addition to being investigated by the 0:02:16.720 --> 0:02:22.240 sec Rothenburg and his firm today is facing lawsuits from investors, creditors, 0:02:22.280 --> 0:02:37.680 and former employees. Hi I'm Akio and I'm Adam Satriano. 0:02:38.040 --> 0:02:41.920 And this week on Decrypted the whistleblower who secretly took on. 0:02:42.080 --> 0:02:46.919 An ambitious venture capitalist is coming out, revealing his identity 0:02:47.120 --> 0:02:50.800 and publicly speaking out about his experiences for the very 0:02:50.840 --> 0:02:54.520 first time. Francisco said he decided to speak to us 0:02:54.639 --> 0:02:57.799 in part to encourage others to take action if they're 0:02:57.840 --> 0:03:01.920 seeing bad behavior at their companies. And Silicon Valley, where 0:03:01.960 --> 0:03:05.720 corporate governance sometimes takes a back seat to growing fast 0:03:05.880 --> 0:03:09.560 and making a name for yourself, employees are serving as 0:03:09.600 --> 0:03:18.919 one of the industry's toughest checks. So, Adam, you wrote 0:03:18.919 --> 0:03:22.320 a story about Mike Rothenberg and his VC firm. Back 0:03:22.360 --> 0:03:28.680 in the headline was telling Lee Silicon Valley's party animal. Yes, 0:03:28.840 --> 0:03:31.480 he did not like that. Yeah, I bet give us 0:03:31.520 --> 0:03:34.840 some background about the guy. What got me interested was 0:03:34.920 --> 0:03:37.880 you had this young venture capitalist. He had raised a 0:03:37.880 --> 0:03:39.960 decent amount of money, and I had also heard the 0:03:39.960 --> 0:03:43.960 story that he had first introduced Mark Zuckerberg to Instagram's founder, 0:03:44.040 --> 0:03:46.600 Kevin's instroum. This was back when they were in their 0:03:46.640 --> 0:03:50.000 college days. But more than anything, I had heard about 0:03:50.040 --> 0:03:53.120 these events that he was throwing around San Francisco. Yeah, 0:03:53.160 --> 0:03:55.760 can you give us an example. Well, my favorite was 0:03:55.800 --> 0:03:57.680 these events that he had had that he called puppy 0:03:57.760 --> 0:04:00.600 parties and they would rent out puppy is that people 0:04:00.640 --> 0:04:02.760 could pet. But there was this other one they did 0:04:02.840 --> 0:04:05.720 Quity called founders Field Day, and this was at a 0:04:05.840 --> 0:04:08.480 T and T park where the San Francisco Giants baseball 0:04:08.480 --> 0:04:11.920 team plays, and he branded the whole thing out, outfitted 0:04:11.960 --> 0:04:16.000 it with virtual reality boosts and other thing for entrepreneurs 0:04:16.040 --> 0:04:18.000 to come and play with. Yeah, this is the thing 0:04:18.040 --> 0:04:22.279 that the HBO show Silicon Valley ended up parodying, right. 0:04:22.880 --> 0:04:25.919 It was this perfect example of all the absurdity and 0:04:26.000 --> 0:04:30.680 exuberance of the startup lifestyle. Richard, after your perfect game 0:04:30.720 --> 0:04:33.839 at tech Crunch Disrupt a few weeks ago, we fell 0:04:33.880 --> 0:04:36.159 in love with you and your tech. Look. We know 0:04:36.240 --> 0:04:38.560 everyone in the valley is after you, and we know 0:04:38.640 --> 0:04:42.200 that you're probably going to go with Peter Gregory, but 0:04:42.279 --> 0:04:44.320 we'd love to have you come play on our team. 0:04:44.800 --> 0:04:50.200 Let's Sternteller capital funding on your Series A financing, because together, Richard, 0:04:50.640 --> 0:05:01.200 we'd be home run. And Rothenberg really seemed like a 0:05:01.279 --> 0:05:03.880 character from the show. When I interviewed him for that 0:05:03.920 --> 0:05:07.159 story in I sometimes wondered if he was putting me on. 0:05:07.920 --> 0:05:10.080 He has a real gift for hyperbole, even by the 0:05:10.080 --> 0:05:13.000 lofty standards of Silicon Valley. Here's a clip from a 0:05:13.040 --> 0:05:15.520 talkie gave its Stanford a few years ago, and we 0:05:15.520 --> 0:05:17.160 want to talk a little bit about blue oceans. So 0:05:17.360 --> 0:05:18.880 when you're in a blue ocean, it means that it's 0:05:18.920 --> 0:05:21.080 kind of a new market. It hasn't fully developed, and 0:05:21.120 --> 0:05:23.840 people are I'm not yet sure where it's going to go, 0:05:24.160 --> 0:05:26.960 but everybody wins because it's a blue ocean and everybody's 0:05:26.960 --> 0:05:31.320 got the opportunities. And now back to red oceans. Rewind 0:05:31.720 --> 0:05:34.480 what did you just say. In a blue ocean, everybody 0:05:34.520 --> 0:05:37.640 can win. And the story we did wasn't a flattering profile. 0:05:38.000 --> 0:05:40.960 That some former employees told me that Rothenberg made them 0:05:40.960 --> 0:05:43.480 buy up all the week's issues a business week at 0:05:43.520 --> 0:05:46.479 the airport so they wouldn't see him. But the firm 0:05:46.600 --> 0:05:50.159 was doing just fine even after your story. Right. Yeah, 0:05:50.240 --> 0:05:52.360 they aren't a big firm by any stretch, but they 0:05:52.360 --> 0:05:55.159 were backing a lot of companies like the stock trading 0:05:55.200 --> 0:05:57.800 app robin Hood, which is now valued at more than 0:05:57.839 --> 0:06:00.880 a billion dollars. And it was with that backdrop that 0:06:00.960 --> 0:06:04.760 Francisco joined Rothenberg Ventures to run their website and office 0:06:04.760 --> 0:06:11.880 I T system. We recently visited Francisco at his one 0:06:11.880 --> 0:06:15.920 bedroom apartment in one of San Francisco's residential neighborhoods. It's 0:06:15.960 --> 0:06:18.919 in an old building built after the nineteen o six earthquake. 0:06:19.279 --> 0:06:21.160 It's at the top of one of the city's many 0:06:21.240 --> 0:06:34.360 large hills. Thanks. Thanks, I thought you like. He gave 0:06:34.440 --> 0:06:37.919 us a quick tour. It's essentially a nerdy bachelor pad. 0:06:38.440 --> 0:06:40.880 There was a big wayboard on one side of the 0:06:40.920 --> 0:06:44.159 living room, which I've seen in the bedrooms of some 0:06:44.240 --> 0:06:47.560 of my other friends who are engineers too. It's so 0:06:47.600 --> 0:06:50.680 that they can write out their code by hands. Francisco 0:06:50.760 --> 0:06:54.080 so had these three big computer monitors on his desk, 0:06:54.240 --> 0:06:57.800 plus a few consoles to play his video games. And 0:06:57.839 --> 0:07:01.920 he had these framed pictures of Apple's famous ad campaign 0:07:02.080 --> 0:07:06.320 dubbed Think Different, featuring people like Picasso. His bedroom and 0:07:06.400 --> 0:07:09.279 his kitchen were a little bit messy. Can I see 0:07:09.320 --> 0:07:19.280 what's in your fridge? Oh, you're soilent drinker For our listeners, 0:07:19.320 --> 0:07:23.760 Soilent is a drink made out of these different nutritional powders, 0:07:24.240 --> 0:07:26.840 and it's really popular with coders who don't want to 0:07:26.880 --> 0:07:31.240 spend time eating real food. Anyway. That's all to say 0:07:31.280 --> 0:07:33.880 that Francisco is a lot like other young engineers in 0:07:33.920 --> 0:07:37.160 Silicon Valley. He went to Stanford and the first job 0:07:37.160 --> 0:07:39.400 he took straight out of school ended up getting bought 0:07:39.480 --> 0:07:42.400 by the tech giant Cisco, not to be confused with 0:07:42.520 --> 0:07:45.760 the nickname that Francisco goes by. And then with that 0:07:45.840 --> 0:07:48.760 small amount of money he ended up making from that acquisition, 0:07:49.000 --> 0:07:51.360 he started his own company that was an exchange for 0:07:51.440 --> 0:07:54.800 betting on the price of bitcoin. This kind of options 0:07:54.840 --> 0:07:57.400 market for bitcoin turned out not to be compliant with 0:07:57.440 --> 0:08:00.800 federal regulations, so the government sent the letter to shut 0:08:00.840 --> 0:08:05.360 it down, and he did not long after. In February, 0:08:06.240 --> 0:08:10.560 Rothenberg Ventures hired Francisco. Rothenberg offered him a salary of 0:08:10.600 --> 0:08:13.280 a hundred and thirty thousand dollars plus a thirty thousand 0:08:13.320 --> 0:08:16.320 dollar bonus, and although he said the firm had scaled 0:08:16.360 --> 0:08:19.240 back on some of those glitzier events, it still had 0:08:19.280 --> 0:08:21.720 a luxury suite at the Basketball Arena where the Golden 0:08:21.760 --> 0:08:24.760 State Warriors played. He went to the games and even 0:08:24.760 --> 0:08:27.880 saw a Rihanna concert there once, all in the company's dime. 0:08:28.320 --> 0:08:31.000 It was a sweet job for a young guy like Francisco, 0:08:31.760 --> 0:08:34.720 but it didn't take him long to start to notice 0:08:34.760 --> 0:08:38.120 some things. Well, the first red flag is actually my 0:08:38.160 --> 0:08:42.320 first week on the director of finance, who was also 0:08:42.360 --> 0:08:45.800 the head of clients quit. She just ran out. I 0:08:45.800 --> 0:08:47.760 didn't know why. Nobody explained it to me, but that 0:08:47.840 --> 0:08:50.400 was the first red flag. Was it clear that something 0:08:50.520 --> 0:08:52.720 was weird was going on? It was clear that something 0:08:52.760 --> 0:08:55.040 weird was going on, but I didn't know what it was. 0:08:55.080 --> 0:08:57.800 I thought it might have been something personal or um. 0:08:57.840 --> 0:08:59.400 One of the things I suspected was that it was 0:08:59.480 --> 0:09:04.679 just like you broy an environment for Not long after, 0:09:04.840 --> 0:09:09.040 Francisco said there was another troubling incident. Uh, there's a 0:09:09.040 --> 0:09:12.880 growing incident. Somebody on the investment team grow up to 0:09:13.040 --> 0:09:16.760 an executive assistant. Um might get it up, putting him 0:09:16.760 --> 0:09:19.560 on unpaid leave for a while. And then um, he 0:09:19.640 --> 0:09:22.440 came back shortly before everyone was put on you know, 0:09:23.640 --> 0:09:26.760 let's go out basically where it was it? Where did 0:09:26.800 --> 0:09:28.559 this happen? Just at the office or at the party? 0:09:28.679 --> 0:09:31.520 It was a yeah party, It was actually Mike's birthday. 0:09:31.679 --> 0:09:35.520 Everyone went out to a bar tonic con Pope and 0:09:35.679 --> 0:09:39.920 lots of shots. Um. The growing thing happened kind of 0:09:39.960 --> 0:09:43.200 r in the night. So that there's some early red flags. 0:09:43.320 --> 0:09:46.680 But so you've cat your it got your suspicion zone. 0:09:46.720 --> 0:09:51.000 But then you still you were still learning things. What 0:09:51.120 --> 0:09:55.640 else where you learning? Yeah? So I had my initial suspicions. UM. 0:09:55.679 --> 0:10:00.480 A whole theme throughout everything was just ridiculous spending UM, 0:10:00.480 --> 0:10:04.320 and I like sports suites UM. And then I had 0:10:04.360 --> 0:10:09.480 some additional suspicions UM. The whole time River STUDIOSUM was 0:10:09.520 --> 0:10:13.000 in the same building. But Mike never really explained the 0:10:13.000 --> 0:10:19.320 funding situation. Let me explain a little bit. In addition 0:10:19.360 --> 0:10:23.560 to Rothenberg Ventures the VC firm, Mike has also set 0:10:23.640 --> 0:10:27.320 up another business, a production company called River Studios that 0:10:27.400 --> 0:10:30.880 made virtual reality videos, and he set up another business 0:10:30.880 --> 0:10:34.480 on top of that called River Enterprises, which was another 0:10:34.520 --> 0:10:38.000 way of investing in companies. Francisco says Mike owned a 0:10:38.200 --> 0:10:42.120 major interest in these new businesses. They were supposed to 0:10:42.200 --> 0:10:45.960 be separate from the venture capital firm that Francisco worked for, 0:10:46.280 --> 0:10:50.360 which was managing other people's money. But Francisco was being 0:10:50.360 --> 0:10:53.400 regularly asked to do work for the other businesses, and 0:10:53.440 --> 0:10:56.000 that made him uncomfortable because he was supposed to work 0:10:56.000 --> 0:11:00.760 for just the VC fund. I felt like I'd been 0:11:01.040 --> 0:11:03.520 do by Mike. I felt like you know, I came 0:11:03.520 --> 0:11:05.400 in to build this l people at all, to make 0:11:05.440 --> 0:11:07.400 things it's easier for the LPs. That turned out he 0:11:07.480 --> 0:11:10.000 was actually using it as you know, a way to 0:11:10.080 --> 0:11:12.880 mislead the LPs, like one of the one of the 0:11:12.920 --> 0:11:16.600 things that it was used for its sending out mass 0:11:16.640 --> 0:11:20.120 emails with notifications about the annual reports, and these funeral 0:11:20.120 --> 0:11:22.960 reports didn't tell the whole story. He left out big things. 0:11:24.920 --> 0:11:28.360 Francisco had access to the company's I T system, so 0:11:28.400 --> 0:11:31.600 he started doing some sleuthing. In a minute, we'll find 0:11:31.640 --> 0:11:35.480 out what he discovered, But first a word from our sponsor. 0:11:37.600 --> 0:11:40.199 You know where you want to be. Red hat has 0:11:40.240 --> 0:11:43.680 the broad portfolio of open source technologies to get you there. 0:11:44.120 --> 0:11:47.960 Meet your evolving business challenges head on with secure solutions 0:11:48.000 --> 0:11:53.480 for the enterprise, including Linux platforms and containers, hybrid cloud infrastructure, 0:11:53.760 --> 0:11:59.360 application integration and development, operations management, and beyond. Visit red 0:11:59.360 --> 0:12:02.600 hat dot com slash open tech to learn more. Red 0:12:02.679 --> 0:12:06.080 Hat the open technology to help you realize your vision. 0:12:08.840 --> 0:12:12.360 Before the break, Francisco had started noticing some things that 0:12:12.400 --> 0:12:16.000 made him suspicious of the venture capital firm he just joined, 0:12:16.320 --> 0:12:19.640 and he started poking around on top of the lavish spending. 0:12:19.720 --> 0:12:23.360 Francisco would later discover internal documents that showed that the 0:12:23.400 --> 0:12:26.760 management fees the VC firm had collected from its investors. 0:12:27.280 --> 0:12:30.120 So this is the money specifically intended for operating the 0:12:30.160 --> 0:12:34.520 fund was actually being used by the virtual reality companies 0:12:34.800 --> 0:12:40.360 that Rothenburg was funding instead. I kept escalating and escalating. UM. 0:12:40.400 --> 0:12:44.880 Also because I made the LP portal, I I asked 0:12:44.880 --> 0:12:47.920 to upload annual reports, so I look at those, and 0:12:47.960 --> 0:12:51.120 I'd see that these companies weren't disclosed them, Like there's 0:12:51.280 --> 0:12:54.839 zero mention of River Enterprises in any of the annual reports. UM. 0:12:55.080 --> 0:12:58.959 Zero I mentioned of River Studios and annual reports. UM. 0:12:59.120 --> 0:13:03.920 Also so that you're concerned that investors didn't even know 0:13:04.040 --> 0:13:07.920 that they were in sort of indirectly at least funding 0:13:07.960 --> 0:13:15.079 some of these other activities. Exactly. Most people shrugged off 0:13:15.160 --> 0:13:17.760 what they were seeing at Rothenberg Ventures. I spoke with 0:13:17.800 --> 0:13:20.240 former employees who said that even though that they had 0:13:20.280 --> 0:13:24.040 felt uncomfortable, nobody thought to step forward. And it might 0:13:24.200 --> 0:13:29.240 sound like Francisco's nitpicking these tiny technical details here, but 0:13:30.000 --> 0:13:33.560 I ran it by Andrew Touch, a professor specializing in 0:13:33.600 --> 0:13:37.440 financial regulation at Washington University School Law, and he said 0:13:37.480 --> 0:13:39.920 This sounds like a case of self dealing, which is 0:13:39.960 --> 0:13:42.040 when a person who's supposed to be looking out for 0:13:42.080 --> 0:13:45.600 the interests of investors instead takes advantage of his position 0:13:45.679 --> 0:13:49.520 to benefit him or herself. Apparently the courts are pretty 0:13:49.559 --> 0:13:52.920 strict about this, Andrew said, this fidciary duty is the 0:13:53.000 --> 0:13:56.719 bedrack of finance of maintaining the trust between companies and 0:13:56.760 --> 0:14:00.480 their investors. At the time that Francisco did and get 0:14:00.480 --> 0:14:03.839 the benefit of that expert guidance, but he still felt 0:14:03.880 --> 0:14:07.400 strongly that it was worth talking to the SEC. He'd 0:14:07.440 --> 0:14:10.319 read up on the responsibility that a fund like Rothenberg 0:14:10.440 --> 0:14:14.440 Ventures has two investors who have given it money, he 0:14:14.559 --> 0:14:17.600 felt it could be fraud if Rothenberg wasn't using the 0:14:17.679 --> 0:14:20.200 money in a way that he had told investors it 0:14:20.240 --> 0:14:23.760 would be used. Once he made up his mind, Francisco 0:14:23.840 --> 0:14:27.760 went to the agency's website SEC dot Go slash Whistleblower, 0:14:28.080 --> 0:14:31.080 where there's a form to submit tips. It's a simple 0:14:31.160 --> 0:14:34.080 questionnaire where you describe the complaint and give the government 0:14:34.120 --> 0:14:37.960 some information about yourself, and there's a way to upload documents. 0:14:38.240 --> 0:14:41.400 In the complaint, he listed examples of how he felt 0:14:41.440 --> 0:14:45.000 funds were being misused so I submitted the forum. About 0:14:45.000 --> 0:14:47.360 a week later, I got an email from the staff 0:14:47.360 --> 0:14:49.680 attorney there. She asked me to go in. I went 0:14:49.720 --> 0:14:52.680 in for one meeting at their San Francisco office. UM, 0:14:52.840 --> 0:14:55.160 we talked about the forum. She had a print out 0:14:55.320 --> 0:14:57.840 of the website which I had everybody's picture on it. 0:14:57.960 --> 0:15:00.080 So we spent some time talking about each employee, what 0:15:00.160 --> 0:15:03.120 their role was. It was, you know, like a nice 0:15:03.160 --> 0:15:06.640 office building on Montgomery Street. It was just the two 0:15:06.640 --> 0:15:09.000 of us in that conference room for that meeting, and 0:15:09.040 --> 0:15:13.640 then later on in subsequent meetings or more people. Francisco 0:15:13.680 --> 0:15:15.560 had a lot riding on this. He knew that coming 0:15:15.600 --> 0:15:18.720 forward could cost him his job. If the SEC decided 0:15:18.760 --> 0:15:21.600 to do nothing against Rothenberg would still be worth it. 0:15:21.920 --> 0:15:24.960 Did you think that they could? You would be damaging 0:15:25.040 --> 0:15:27.360 your career in your future. Yeah, I knew that to 0:15:27.440 --> 0:15:31.280 some extent. I would be damaging my career. Why do 0:15:31.320 --> 0:15:35.720 you say, thatt, I'm just so sure that it was 0:15:35.760 --> 0:15:39.080 the right thing to do that, you know, Uh, it 0:15:39.200 --> 0:15:43.960 was worth that price that I'd have to pay. After 0:15:44.000 --> 0:15:47.040 that first meeting with the SEC, Francisco went back to 0:15:47.080 --> 0:15:50.680 work like nothing was different. He began to live this 0:15:50.840 --> 0:15:54.200 somewhat double life. While working like normal, he was also 0:15:54.280 --> 0:15:59.920 corresponding with SEC sharing documents with them. Another information about Rothenburg. 0:16:00.200 --> 0:16:04.280 Getting access to these documents wasn't difficult. Francisco was in 0:16:04.400 --> 0:16:07.280 charge of it T at Rothenburg Ventures, so he had 0:16:07.320 --> 0:16:10.120 access to all kinds of things that others didn't like 0:16:10.160 --> 0:16:14.880 financial reports, email logs, and investor information. He'd copy them 0:16:14.880 --> 0:16:16.720 onto a thumb drive and then send them to the 0:16:16.840 --> 0:16:20.720 SEC via email later from his house. Did you feel 0:16:20.760 --> 0:16:26.200 paranoying a little bit? Yeah, but I just didn't mention 0:16:26.240 --> 0:16:31.240 it to anybody, and um, I didn't feel that different. 0:16:32.520 --> 0:16:35.720 This double life didn't go on for long. A big 0:16:35.760 --> 0:16:38.240 turning point came just a few days later when he 0:16:38.320 --> 0:16:41.720 told the SEC that Rothenburg Ventures was making some changes 0:16:41.760 --> 0:16:44.200 to its I T systems and some of the email 0:16:44.200 --> 0:16:47.840 accounts were being deleted. This was in July of last year, 0:16:48.960 --> 0:16:52.840 soon after the SEC sent an order to Rothenberg Ventures 0:16:53.040 --> 0:16:56.560 telling them to not delete any records. It was the 0:16:56.600 --> 0:16:58.760 first time that the firm knew it was in the 0:16:58.880 --> 0:17:03.400 SEC's cross hands. And then Francisco got a message to 0:17:03.440 --> 0:17:05.800 come to a meeting with two senior executives at the 0:17:05.840 --> 0:17:09.359 firm Mike Rothenberg wasn't there. I was doing my work 0:17:09.520 --> 0:17:11.440 and then one of them sent me a text message 0:17:11.720 --> 0:17:13.439 and he said that he had an I T problem 0:17:13.480 --> 0:17:15.360 that he needed help with, so could I make sure 0:17:15.400 --> 0:17:18.399 I was in the office in a few minutes and 0:17:18.400 --> 0:17:21.600 I said, yeah, sure, and then I think about half 0:17:21.600 --> 0:17:23.959 an hour went by, and then he came by and 0:17:24.080 --> 0:17:25.919 got me. I was sitting sitting out of couch in 0:17:25.960 --> 0:17:29.000 the main office there, and then he took me um 0:17:29.000 --> 0:17:32.720 into what was really Mike's office but wasn't in the 0:17:32.720 --> 0:17:36.080 office that day, just a small office by itself off 0:17:36.119 --> 0:17:40.720 that man room. And what happened? So his first question, 0:17:41.280 --> 0:17:44.560 UM was he said, UM, so we've noticed that you've 0:17:44.600 --> 0:17:48.040 been doing some government related searches and I didn't say 0:17:48.080 --> 0:17:50.800 anything to that. And then he said did anybody tell 0:17:50.840 --> 0:17:53.280 you to do that? And I said I'm not going 0:17:53.320 --> 0:17:56.359 to answer that question. And then he said, well you're 0:17:56.440 --> 0:18:02.119 terminated effective immediately, um, and then long awkward pause, and 0:18:02.160 --> 0:18:04.840 then he said do you have anything to say? And 0:18:04.920 --> 0:18:06.760 I said, um, I have some personal lot ends of 0:18:06.760 --> 0:18:09.960 my desk a should grab and then he has started 0:18:10.000 --> 0:18:12.479 me to get that stuff and then out of the building. 0:18:13.280 --> 0:18:15.320 How did you feel after that, were you said, did 0:18:15.320 --> 0:18:18.760 you cry? Were you angry? I was? I was angry, 0:18:18.880 --> 0:18:23.080 like my heart was pounding. Um, it's mainly angry. Why 0:18:23.119 --> 0:18:26.320 were you angry? That was unfair? Like you can't terminate 0:18:26.440 --> 0:18:29.120 what's the blower? Like that? Um? And this was immediately 0:18:29.160 --> 0:18:31.399 after they got a document preservation order from the SEC. 0:18:31.960 --> 0:18:38.800 That's probably what that's probably that's why they're suspicious. The 0:18:38.880 --> 0:18:41.400 SEC has declined to comment about the case, but tech 0:18:41.440 --> 0:18:45.000 Crunch reported Rothenberg Ventures is being investigated for wire fraud, 0:18:45.320 --> 0:18:51.800 bank fraud, and breach of fiduciary duty in law suits 0:18:51.800 --> 0:18:56.240 from investors and employees. It's been alleged that Mike Rothenberg 0:18:56.560 --> 0:18:59.960 used money intended for the startups for his own benefit, 0:19:00.040 --> 0:19:04.800 it to support his own lifestyle, and Francisco learned from 0:19:04.840 --> 0:19:08.240 emails he had downloaded from the firm that at one point, 0:19:08.320 --> 0:19:12.880 Mike Rothenberg was paying himself about one million dollars, which 0:19:12.920 --> 0:19:16.080 is a huge amount for a relatively small firm, but 0:19:16.200 --> 0:19:19.600 Rothenberg was also struggling to manage it all. Last year, 0:19:19.840 --> 0:19:23.479 Rothenberg needed to provide documents and tax information and some 0:19:23.600 --> 0:19:28.199 return on investment to investors, and according to Francisco, and 0:19:28.240 --> 0:19:31.719 some media reports the money wasn't there. Okay, so this 0:19:31.760 --> 0:19:34.960 is a little bit complicated, but stick with us. The 0:19:35.000 --> 0:19:38.359 records show that River Studios, which if you remember, is 0:19:38.400 --> 0:19:42.600 one of the virtual reality businesses founded by Mike Rothenberg 0:19:43.160 --> 0:19:47.840 this started, received two million dollars from an investor. The 0:19:47.880 --> 0:19:52.240 same day, River Studios transferred one point seven million dollars 0:19:52.320 --> 0:19:56.880 to Mike Rothenberg's personal account. Also on that same day, 0:19:57.040 --> 0:20:02.119 Mike Rothenberg transferred once again one point seven million dollars 0:20:02.200 --> 0:20:07.160 from his own account to the Rothenburg Ventures account. According 0:20:07.200 --> 0:20:11.200 to Francisco, that gave Rothenberg Ventures the money to meet 0:20:11.240 --> 0:20:14.520 the deadline of the other investors. By the way, that 0:20:14.560 --> 0:20:17.920 investor who wired the two million has now sued Rothenberg. 0:20:18.200 --> 0:20:21.480 The lawsuit alleges that Rothenberg co mingled the bank accounts 0:20:21.480 --> 0:20:25.240 of his various entities, essentially treating the accounts of those 0:20:25.280 --> 0:20:36.879 businesses as as personal accounts. By the second half of 0:20:36.960 --> 0:20:41.040 last year, employees Quentin mass and a class action lawsuit 0:20:41.320 --> 0:20:43.879 is working its way through the courts. It alleges that 0:20:43.920 --> 0:20:47.480 staffers weren't paid. Another former employee has sued for more 0:20:47.520 --> 0:20:51.760 than a hundred thousand dollars that alleges Rothenberg didn't repay 0:20:51.840 --> 0:20:54.280 for business charges that have been put on a credit card. 0:20:54.840 --> 0:21:00.280 American Express is also sued for unpaid charges. I knew 0:21:00.280 --> 0:21:02.600 Mike Rothenberg a touch when I did that story back 0:21:02.640 --> 0:21:06.240 in so I reached out to him about Francisco and 0:21:06.320 --> 0:21:09.120 to get his side of the story. He didn't respond, 0:21:09.240 --> 0:21:11.200 but a person who works for a New York PR 0:21:11.320 --> 0:21:16.520 firm that specializes in crisis management and image rehabilitation reached out. 0:21:17.160 --> 0:21:19.520 He told me Mike wouldn't be available for an interview 0:21:19.720 --> 0:21:24.440 given the ongoing investigations in lawsuits Adam did the spokesman 0:21:24.720 --> 0:21:28.520 comment at all about Francisco where the allegations made by 0:21:28.600 --> 0:21:32.679 him and in the lawsuits. He disputed Francisco's allegation that 0:21:32.760 --> 0:21:35.760 he was fired for speaking with SEC. He said that 0:21:35.800 --> 0:21:39.640 Francisco had already given notice that he was leaving. Francisco 0:21:39.760 --> 0:21:43.360 says this is not true. The spokesman also pointed out 0:21:43.400 --> 0:21:46.040 that Francisco had this run in with authorities for the 0:21:46.080 --> 0:21:50.760 bitcoin exchange. He was implying that undermines his credibility. But 0:21:50.960 --> 0:21:55.560 what about the core allegations about misusing money. The spokesman 0:21:55.600 --> 0:21:59.240 declined to comment about the specifics. But Rothenberg did post 0:21:59.280 --> 0:22:02.360 a Facebook law I video earlier this year to explain. 0:22:03.680 --> 0:22:06.480 So one of the things that I just wanna answer 0:22:06.560 --> 0:22:08.720 head on which I which I have done to the press, 0:22:08.760 --> 0:22:10.639 but they have not published it, and I want to 0:22:10.640 --> 0:22:13.760 be sure I'm very clear about this is the question 0:22:13.880 --> 0:22:17.359 I've had is you know, have you taken any money improperly? 0:22:17.800 --> 0:22:19.720 And the answer is no. And I've said that before 0:22:19.760 --> 0:22:22.760 and and uh it continues to that message continues to 0:22:22.800 --> 0:22:24.680 knock it out. There is clearly as it should. And 0:22:24.720 --> 0:22:26.840 another one is that have we made any investments without 0:22:26.840 --> 0:22:30.880 investor permission? We haven't. We have not made any investments 0:22:30.880 --> 0:22:34.040 without investor permission. For those kinds of rumors going quickly, 0:22:34.640 --> 0:22:38.080 there has to be very responsible reporting and um, there 0:22:38.080 --> 0:22:40.199 has to be fair and balance reporting. And there's a 0:22:40.320 --> 0:22:43.159 very big um. There's a very big weight on the 0:22:43.200 --> 0:22:48.119 shoulders of reporters because those um that particular group of people. 0:22:48.200 --> 0:22:50.600 The video goes on and in it he spends a 0:22:50.640 --> 0:22:54.320 lot of time blaming the media for bias coverage. Adam, 0:22:54.400 --> 0:22:57.680 you spoke to a few professors to better understand what 0:22:57.760 --> 0:23:00.720 kind of trouble that Mike Rothenberg and his firm might 0:23:00.760 --> 0:23:03.439 be in What I learned is the SEC has been 0:23:03.480 --> 0:23:07.480 pretty vigilant in protecting whistleblowers, including bringing actions against those 0:23:07.480 --> 0:23:10.560 who retaliate. So that means it will be pretty difficult 0:23:10.760 --> 0:23:15.720 for Rothenberg to come after Francisco for going to the SEC. Yeah, 0:23:15.760 --> 0:23:18.399 and I also learned that Rothenberg could be in hot water, 0:23:18.560 --> 0:23:22.320 especially for what appears to be mismanagement of funds. Like 0:23:22.359 --> 0:23:25.880 we talked about earlier, fidiciary duty is the bedrock of finance. 0:23:25.920 --> 0:23:28.840 It's that trust between an investor and a person like 0:23:28.960 --> 0:23:32.199 Rothenberg who's investing that money on their behalf. Do you 0:23:32.200 --> 0:23:35.080 think there's a risk of jail time here? People I 0:23:35.119 --> 0:23:38.680 spoke with didn't think so, but there's definitely a possibility 0:23:38.680 --> 0:23:44.080 of financial penalties. And even beyond that, Mike Rothenberg's reputations 0:23:44.080 --> 0:23:48.080 and tatters. Now that's right, and Rothenberg was this really 0:23:48.119 --> 0:23:52.159 ambitious venture capitalist, but now that the firm is a 0:23:52.200 --> 0:23:55.400 bare bone staff and the reputation has really been hurt. 0:23:57.880 --> 0:24:01.760 In addition to speaking with the SEC, Francisco also began 0:24:01.920 --> 0:24:05.320 communicating with a few journalists about what he'd been finding 0:24:05.400 --> 0:24:10.000 at Rothenburg, under the condition that they wouldn't name him. 0:24:10.040 --> 0:24:12.600 At that point, while the firm's big spending and lavish 0:24:12.600 --> 0:24:16.320 events were well known, the internal turmoil had been largely 0:24:16.359 --> 0:24:19.160 kept under wraps. But in the months after that, several 0:24:19.320 --> 0:24:23.800 very tough stories came out chronicling Rothenberg's questionable management of funds. 0:24:24.440 --> 0:24:28.159 Francisco says that he never regretted the decisions he made, 0:24:28.600 --> 0:24:31.560 but it did take a toll. After he says he 0:24:31.600 --> 0:24:34.080