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Greed-to-Grief, No. 5

Greed-to-Grief, No. 5

Mathlete turned into the Silicon Valley Party Animal then went bust

George Pillari
May 29, 2025

Michael Rothenberg was a mathlete. After competing in the high school math Olympics, he went on to college at Stanford and then Harvard for an MBA. While at Stanford, he introduced his roommate to a guy named Mark Zuckerberg, who later acquired the roommate’s company. The company was Instagram, you may have heard of it.

Rothenberg was well connected and thrived in the world of networking. As he watched his classmates from Stanford and Harvard build companies and get rich, Rothenberg wanted to cash in.

Rothenberg Ventures did seed venture capital, or small investments (typically $100,000 per company). At its peak, the venture firm had as much as $50 million under management.

Rothenberg was dubbed the Silicon Valley Party Animal for his extravagant “networking” events. Some of which included renting out the San Francisco Giants baseball stadium for a day of fun for his investors and companies.

Rothenberg Ventures was even used as a basis for the television parody Silicon Valley.

Michael Rothenberg, Mathlete who became the Silicon Valley Party Animal

Rothenberg had a couple of good investments among the 100 or so companies in his portfolio, but it was one ill-advised move that brought everything down.

Rothenberg’s started River Studios, his own virtual reality company and transferred money from his venture firm to River to fund it. A big no-no. The River investment infuriated employees and investors and before long the SEC and FBI were all over River and Rothenberg.

Rothenberg’s style was the basis for an episode of the Silicon Valley television show

The charges came crashing down on 34-year-old Rothenberg and in the end, he was sentenced to three years in prison for among other things, Wire Fraud.

But what the heck is wire fraud? We see the words all the time when there are financial crimes, but let’s make sure we understand it.

Let’s go back to Samuel Morse and the invention of the first commercial telegraph in 1844. The first telegraph transmission went between Baltimore and Washington. Twenty years later, cable was in place connecting America with Europe and communications using Morse Code were flowing over the wire.

Ships used Morse Code until 1999 when it was replaced by the Global Maritime Distress and Safety System. The US Air Force still requires Morse Code training for a certain number of cadets every year.

Communications over the wire exploded. The telephone came into play in the late 1800s, radio around 1900, television in the 1930s, and the Internet in 1960s. (The Internet was originally part of the US defense infrastructure, but that’s for another post.)

It wasn’t until the 1950s that wire fraud was defined as a criminal act by the US Department of Justice and can be summarized as folllows:

That the defendant voluntarily and intentionally devised or participated in a scheme to defraud another out of money using interstate wire communications.

So, that means just about any type of modern communication used to commit fraud was now fair game for the FBI and other enforcement agencies.

The Wire Fraud Act provided the government with the hammer it needed to crack down on sophisticated criminals who moved money between US and offshore bank accounts, as well as the infomercial hustler promoting the magic milkshake that gets your hair to grow back, helps you lose weight, and, of course, look younger by drinking one shake before bedtime.

Since almost any modern financial crime involves wire fraud, the FBI has several thousand agents specializing in it.

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When Rothenberg started commingling his investors’ funds with his own bank accounts at River Studios, there was no turning back.

The venture funds were entrusted to Rothenberg through a strict contract with each investor the spelled out the parameters of how the funds would be invested, eg, “early-stage technology companies.” Obviously, there was no mention of Rothenberg using the funds for his own personal benefit and not the benefit of his investors.

For the venture funds, Rothenberg was a fiduciary of his investor’s money. But he reached into the cookie jar to enrich himself by moving money to River Studios, which he owned alone.

Why do we see “wire fraud” all the time with financial crimes? Because it is almost impossible to move millions of dollars without a phone call or email. Or stated differently, some type of communication that went over a wire. (Best practices for wiring money still require a verbal confirmation by the sender.)

The path from Greed-to-Grief

After his arrest, a source had told the publication TechCrunch that “Mike [Rothenberg] wants to be famous. And now, he is.”

To me, that pretty much sums it up for Rothenberg. He led the life of a swaggering billionaire despite managing a small venture fund that had yet to deliver any returns to investors.

For guys like Rothenberg, the lines do not get blurred, there are no lines. Sudden access to fiduciary funds does not make you wealthy. News flash: it’s not your money.

Rothenberg had the smarts, the connections, and the drive to succeed. Greed got the best of him and he flamed out as fast as he took off.

Key Takeaways

If you have a lot going for you like Rothenberg did, find some mentors or experienced friends to give you advice that goes against your instincts. Look at decisions from many perspectives.

High-profile spending will always attract attention. Would you want to provide an accounting to your investors of how batting practice at a MLB stadium will boost returns?

Whistleblowers are everywhere. The FBI, SEC, and other government organizations typically pay 10% to 30% of the recovery to the whistleblower. Hint: this is usually several times an employees annual pay and reach in the millions or tens of millions of dollars.

Things I think about

In 1965, 43% of US adults smoked cigarettes. Today, the number is less than 12%.

Greed-to-Grief, No. 5

Mathlete turned into the Silicon Valley Party Animal then went bust

The path from Greed-to-Grief

Key Takeaways

Things I think about

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