National Whistleblower Day

On June 26, the U.S. Attorney’s Office for the Northern District of California announced multiple criminal charges against venture capitalist Michael Rothenberg.  Rothenberg, who was well known in the tech world for his lavish parties, allegedly defrauded his investors of at least $18.8 starting in 2013.  According to the prosecutors, Rothenberg continually lied to investors, telling them their funds would be directed to promising start-ups but instead using the funds for personal use.  Additionally, Rothenberg is charged with bank fraud for allegedly lying about his wealth to obtain loans.

Rothenberg’s misconduct first came to the authorities’ attention in 2016 through the brave actions of a whistleblower.  Francisco Riordian, who has since publicly acknowledged his role as the whistleblower, was a software engineer at Rothenberg’s firm Rothenberg Ventures.  Riordian grew suspicious of Rothenberg’s use of funds, and upon discovering evidence of what he believed to be fraud, he submitted the information to the Securities and Exchange Commission (SEC). Riordian’s tip led the SEC to issue a complaint against Rothenberg in 2018, which charged him of overcharging investors to fund personal projects.  Rothenberg agreed to be barred from the securities industry for five years at the time of the complaint.  In 2019, a federal district court ordered Rothenberg to pay more than $31 million in disgorgement, prejudgment interest, and penalties.

The Dodd-Frank Act established the SEC Whistleblower Program.  Through this program, the SEC pays monetary awards to individuals who provide original information regarding violations of securities laws enforced by the SEC or violations of the Foreign Corrupt Practices Act. If the information results in a successful enforcement action, the whistleblower can file a whistleblower award claim. SEC whistleblowers are eligible for an award of 10-30% of the money collected. The Dodd-Frank Act’s anti-retaliation provisions also protect securities fraud whistleblowers.

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