The US Securities and Exchange Commission last week filed civil charges against the founder of a venture capital fund and his financial advisory firm for over-billing investors to finance his personal business ventures, including funneling millions to his virtual reality company.
In its Complaint, the SEC alleged that Michael Rothenberg touted his investment advisory firm as able to identify millennial entrepreneurs and capitalize on new, cutting-edge technology ventures. Per the SEC’s allegations, Rothenberg’s funds had almost 200 investors and in excess of $64 million in assets under management. During a three-year run, the SEC contends Michael Rothenberg wrongly appropriated millions of investor funds, of which approximately $7 million were derived from excessive fee charges. Rothenberg then utilized these illicit funds to finance personal businesses he represented to be “self-funded”, and to pay for extravagant parties and events, the SEC contends.
With neither admitting nor denying the SEC’s allegations, Michael Rothenberg and his related entity settled the liability portion of the SEC’s case, but left open for court resolution the issues of disgorgement and civil monetary penalties. This settlement structure is known as a bifurcated settlement, where liability is resolved, but the issues of the amount of disgorgement and/or the civil penalty (and sometimes injunctive relief) are reserved for later determination by the court. Under this model, however, the defendant agrees that the court must accept the complaint’s allegations as true for purposes of resolving the monetary remedies, a significant limitation.
While there are material benefits to agreeing to a bifurcated settlement, there also exist significant risks, and thus the decision to either settle the entirety of the case with the SEC, or go the bifurcation route and leave certain issues open for resolution by the judge, is a nuanced, strategic call based on multiple considerations that has to be carefully vetted and assessed by a seasoned SEC defense lawyer.
David Chase, a SEC defense lawyer, is the principal of his SEC defense law firm, David R. Chase, P.A., located in Fort Lauderdale, Florida. Mr. Chase, formerly an SEC enforcement attorney, now defends SEC and FINRA investigations and enforcement actions around the country. If you are under SEC investigation or a FINRA inquiry, call SEC defense lawyer David Chase for a confidential, no-cost initial consultation at: (800) 760-0912, or you may contact Mr. Chase at: david@davidchaselaw.com.
