[JumpCrisscross]

"Without admitting or denying the allegations in the SEC’s complaint, Rothenberg and Rothenberg Ventures agreed to settle the charges. The settlement is subject to approval by the federal district court for the Northern District of California which would determine the amount of disgorgement and civil money penalties. Rothenberg also agreed to be barred from the brokerage and investment advisory business with a right to reapply after five years. An SEC order imposing the bar will be instituted following court approval of the settlement" [1].

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].

[1] https://www.sec.gov/news/press-release/2018-160

[2] https://en.wikipedia.org/wiki/Rothenberg_Ventures

[wmf]

blowing investors' money on lavish staff events, which is a dick move but not necessarily illegal

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.

[aml183]

There is something called fund expenses. A GP can allocate part of the fund to pay towards expenses they deem to be fund expenses. For example, the audit would be classified as a fund expense. Most funds have an outside administration company that handles the money and approves/rejects these decisions.

[qeternity]

Many funds have "chargeable" expenses like research and travel. These come directly out of the fund and not the management fee.

Source: former hedge fund trader

[throwawaymath]

> Besides blowing investors' money on lavish staff events, which is a dick move but not necessarily illegal

Can you talk a bit about where the line is between this being merely unethical as opposed to outright illegal?

[dsr_]

If you're in charge of the company, you can authorize expenditures for anything that reasonably relates to the company's business, including attracting investors, retaining employees, or incenting them to succeed. It's reckless to spend all your money on parties, but not 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).

[cardiffspaceman]

I think you left out this one:

If you make invoices that say you've ordered soda for the programmers, but there are no deliveries of soda because the money for sodas went to your overseas numbered account, that's illegal.

[paulddraper]

Another place you could go wrong is if you try to hide your poor financial decisions by giving fraudulent reports to shareholders/SEC.

(Example: Enron)

[x0x0]

From the sec complaint

> 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.

[mfringel]

What does "dick move" mean to you, in this context?