UPDATE: Life After Blowing the Whistle in Silicon Valley

the end. Just over a year ago, Francisco Reordan was a twenty seven year old software engineer, and he joined a venture capital firm called Rothenburg Ventures. The company's founder, Mike Rothenberg, was a young, charismatic Stanford University grad, and he was known around Silicon Valley for throwing these extravagant parties.

Francisco had heard about his new employer's reputation, partly from a skeptical story I wrote for Business This Week back in At the time, Francisco didn't think much of it. It made me think it was a little bit risky, but um I still thought the company was making good investments based on their portfolio, so I said brush those concerns aside. And in retrospect, uh, I shouldn't have done that.

I shouldn't have done that. Francisco says this because soon after he joined he started noticing some unusual things, things that were raising his suspicions. The more he dug around, the more he found. In just a few months in he discovered something he thought was bad, maybe even against the law, something that bothered him enough to take the very serious step of secretly reporting it to government regulators. Yeah. I mean, the internal debate was what will people think

of me for doing this? I felt, I'm pretty sure it was the right thing to do, but you know, I thought about what are the consequences to me personally? By love the whistle. A week after Francisco filled out an online form on the website of the SEC short for the Securities and Exchange Commission, a lawyer from the commission got in touch with him. From there, Francisco became something of a double agent, providing the government information about

his employer. Francisco's actions set in motion a series of events that ultimately brought down one of the venture capital industries aspiring stars. In addition to being investigated by the sec Rothenburg and his firm today is facing lawsuits from investors, creditors, and former employees. Hi, I'm aki Ito and I'm Adam Satriano.

And this week on Decrypted, the whistleblower who secretly took on an ambitious venture capitalist is coming out, revealing his identity and publicly speaking out about his experiences for the very first time. Francisco said he decided to speak to us in part to encourage others to take action if they're seeing bad behavior at their companies. In Silicon Valley, where corporate governance sometimes takes a back seat to growing fast and making a name for yourself, employees are serving

as one of the industry's toughest checks. So, Adam, you wrote a story about Mike Rothenberg and his VC firm. Back in the headline was telling Lee Silicon Valley's party animal. Yes he did not like that. Yeah, Bet, give us some background about the guy. What got me interested was

you had this young venture capitalist. He had raised a decent amount of money, and I had also heard the story that he had first introduced Mark Zuckerberg to Instagram's founder, Kevin's instrom This was back when they or in their college days. But more than anything. I had heard about these events that he was throwing around San Francisco. Yeah,

can you give us an example. Well, my favorite was these events that he had had that he called puppy Parties, and they would rent out puppies that people could pet. But there was this other one they did Quity called founders Field Day, and this was at a T and T park where the San Francisco Giants baseball team plays, and he rented the whole thing out, outfitted it with virtual reality boosts and other thing for entrepreneurs to come and play with. Yeah, this is the thing that the

HBO show Silicon Valley ended up parodying, right. It was this perfect example of all the absurdity and exuberance of the startup lifestyle. Richard, after your perfect game at tech Crunch Disrupt a few weeks ago, we fell in love with you and your tech. Look. We know everyone in the valley is after you, and we know that you're probably going to go with Peter Gregory, but we'd love

to have you come play on our team. Let's stern Teller Capital funding on your Series A financing, because together, Richard, we'd be oh home run and Rothenberg really seemed like a character from the show. When I interviewed him for that story in I sometimes wondered if he was putting me on. He has a real gift for hyperbole, even by the lofty standards of Silicon Valley. Here's a clip from a talkie gave its Stanford a few years ago, and we want to talk a little bit aboutlue oceans.

So when you're in a blue ocean, it means that it's kind of a new market. It hasn't fully developed, and people are I'm not yet sure where it's gonna go, but everybody wins because it's a blue ocean and everybody's gathering the opportunities. And now back to red oceans. Rewind what did you just say. In a blue ocean, everybody can win. And the story we did wasn't a flattering profile. That some former employees told me that Rothenberg made them buy up all the week's issues of Business Week at

the airport so they wouldn't see him. But the firm was doing just fine even after your story. Right. Yeah, they aren't a big firm by any stretch, but they were backing a lot of companies like the stock trading app robin Hood, which is now valued at more than a billion dollars, and it was with that backdrop that Francisco joined Rothenburg Ventures to run their website and office I T system. We recently visited Francisco at his one

bedroom apartment in one of San Francisco's residential neighborhoods. It's in an old building built after the nineteen o six earthquake. It's at the top of one of the city's many large hills. Thanks, thanks, I thought, okay. He gave us a quick tour. It's essentially a nerdy bachelor pad. There was a big whiteboard on one side of the living room, which I've seen in the bedrooms of some of my other friends who are engineered is too. It's so that

they can write out their code by hand. Francisco so had these three big computer monitors on his desk, plus a few consoles to play his video games. And he had these framed pictures of Apple's famous ad campaign dubbed Think Different, featuring people like Picasso. His bedroom and his kitchen were a little bit messy. Can I see what's

in your fridge? Oh, you're soilent drinker. For our listeners, Soilent is a drink made out of these different nutritional powders, and it's really popular with coders who don't want to spend time eating real food. Anyway, that's all to say that Francisco is a lot like other young engineers in Silicon Valley. He went to Stanford and the first job he took straight out of school ended up getting bought by the tech giant Cisco, not to be confused with

the nickname that Francisco goes by. And then with that small amount of money he ended up making from that acquisition, he started his own company that was in exchange for betting on the price of bitcoin. This kind of options market for bitcoin turned out not to be compliant with federal regulations, so the government sent him a letter to shut it down, and he did not long after. In February,

Rothenberg Ventures hired Francisco. Rothenberg offered him a salary of a hundred and thirty thousand dollars plus a thirty thousand dollar bonus. And although he said the firm had scaled back on some of those glitzier events, it still had a luxury suite at the basketball arena where the Golden State Warriors played. He went to the games and even saw a Rihanna concert there once, all in the company's dime.

It was a sweet job for a young guy like Francisco, but it didn't take him long to start to notice some things. Well. The first red flag was actually my first week on. The director of finance, who was also the head of clients quit. She just ran out. I didn't know why. Nobody explained it to me, but that was the first red flag. Was it clear that something was weird was going on? It was clear that something weird was going on, but I didn't know what it was.

I thought it might have been something personal or um. One of the things I suspected was that it was just like too broy an environment. For Not long after, Francisco said, there was another troubling incident. Uh, there's a growing incident. Somebody on the investment team grow up to an executive assistant. Um, I might get it up, putting him on unpaid leave for a while, and then um, he came back shortly before everyone was put on you know,

let's out basically where it was it? Where did this happen? Just at the office at a party? It was a yeah, party. It was actually Mike's birthday. Everyone went out to a bar tonic un poll and lots of shots. UM. The growing thing happened kind of ruin the night. So that so there's some really red flags. But so you hit your it got your suspicion zone. But then you're still learning things. What else were you learning? Yeah, so I

had my initial suspicions. UM, A whole theme throughout everything was just ridiculous spending UM any online sports suites UM. And then I had some additional suspicions UM the whole time. River STUDIOSUM was in the same building. But Mike never really explained the funding situation. Let me explain a little bit.

In addition to Rothenberg Ventures the VC firm, Mike has also set up another business, a production company called River Studios that made virtual reality videos, and he set up another business on top of that called River Enterprises, which was another way of investing in companies. Francisco says Mike

own a major interest in these new businesses. They were supposed to be separate from the venture capital firm that Francisco worked for, which was managing other people's money, but Francisco was being regularly asked to do work for the other businesses, and that made him uncomfortable because he was supposed to work for just the VC fund. I felt like I'd been do by Mike. I felt like, you know, I came in to build the sell people at all,

to make things easier for the LPs. It turned out he was actually using it, as you know, a way to mislead the LPs. Like one of the one of the things that it was used for, it was sending out nass emails with notifications about the annual reports. And these feral reports didn't tell the whole story. He left out big things. Francisco had access to the company's I T system, so he started doing some sleuthing. In a minute,

we'll find out what he discovered. Before the break, Francisco had started noticing some things that made him suspicious of the venture capital firm he just joined, and he started poking around on top of the lavish spending. Francisco would later discover internal documents that showed that the management fees the VC firm had collected from its investors. So this is the money specifically intended for operating the fund was actually being used by the Virtual reality companies that Rothenburg

was funding. Instead, I kept escalating and escalating UM. Also, because I made the LP portal, I I was asked to upload annual reports, so I look at those, and I'd see that these companies weren't disclosed them like there's zero mentioned or River Enterprises in any of the annual reports UM zero. I mentioned a River Studios and annual reports UM Also, so that you were concerned that investors didn't even know that they were in sort of indirectly

at least funding some of these other activities exactly. Most people shrugged off what they were seeing at Rothenberg Ventures. I spoke with Warmer employees who said that even though that they had felt uncomfortable, nobody thought to step forward.

And it might sound like Francisco's nitpicking these tiny technical details here, but I ran it by Andrew Touch, a professor specializing in financial regulation at Washington University School Law, and he said, this sounds like a case of self dealing, which is when a person who's supposed to be looking out for the interests of investors instead takes advantage of

his position to benefit him or herself. Apparently, the courts are pretty strict about this, Andrew said, this fiduciary duty is the bedrack of finance of maintaining the trust between companies and their investors. At the time that Francisco didn't get the benefit of that expert guidance, but he still felt strongly that it was worth talking to the SEC. He'd read up on the responsibility that a fund like Rothenberg Ventures has two investors who have given it money.

He felt it could be fraud if Rothenberg wasn't using the money in a way that he had told investors it would be used. Once he made up his mind, Francisco went to the agency's website SEC dot go slash whistleblower, where there's a form to submit tips. It's a simple questionnaire where you describe the complaint and give the government some information about yourself, and there's a way to upload documents. In the complaint, he listed examples of how he felt

funds were being misused. So I submitted the forum. About a week later, I got an email from the staff attorney there. She asked me to go in. I went in for one meeting at their San Francisco office, um we talked about the forum. She had a print out of the website which had everybody's picture on it, So we spent some time talking about each employee, what their role was. It was, you know, like a nice office

building on Montgomery Street. It was just the two of us in that conference room for that meeting, and then later on in subsequent meetings or more people. Francisco had a lot writing on this. He knew that coming forward could cost him his job. If the sc C decided to do nothing against Rothenburg would still be worth it. Did you think that they could? You would be damaging your career in your future. Yeah, I knew that to some extent. I would be damaging my career. Why do

you say that. I'm just so sure that it was the right thing to do that, you know, Uh, it was worth that price that I'd have to pay. After that first meeting with the SEC, Francisco went back to work like nothing was different. He began to live this somewhat double life. While working like normal, He was also corresponding with SEC, sharing documents with them. Another information about Rothenberg.

Getting access to these documents wasn't difficult. Francisco was in charge of I T at Rothenberg Ventures, so he had access to all kinds of things that others didn't like, financial reports, email logs, and investor information. He'd copy them onto a thumb drive and then send them to the SEC via E Neil later from his house. Did you feel paranoying a little bit? Yeah, but I just didn't mention it to anybody, and um, I didn't feel that different.

This double life didn't go on for long. A big turning point came just a few days later when he told the SEC that Rothenburg Ventures was making some changes to its I T systems and some of the email accounts were being deleted. This was in July of last year, soon after the SEC sent an order to Rothenberg Ventures telling them to not delete any records. It was the first time that the firm knew it was in the

SEC's cross hairs. And then Francisco got a message to come to a meeting with two senior executives at the firm. Mike Rothenberg wasn't there. I was doing my work and then one of them sent me a text message and he said that he had an I T problem that he needed help with, so could I make sure I was in the office and minutes and I said yeah, sure, And then I think about half an hour went by,

and then he came by and got me. I was sitting sitting out of couch in the main office there, and then he took me um into what was really Mike's office, but Mike wasn't in the office that day, just a small office by itself. Off that man rum and what happened? So his first question, UM was he said, UM, so we've noticed that you've been doing some government related searches. And I didn't say anything to that. And then he said did anybody tell you to do that? And I said,

I'm not going to answer that question. And then he said, well you're terminated effective immediately, um, and then long awkward pause, and then he said do you have anything to say? And I said, um, I have some personal litems to my desk actually grab and then he had started me to get that stuff and then out of the building. How did you feel after that? Where you said, did you cry? Were you angry? Whom he wouldn't I was. I was angry, like my my heart was founding. Um,

it's mainly angry. Why were you angry? That was unfair? Like you can't terminate it's a blur like that. Um, and this was immediately after they got a document particivation order from the SEC. That's probably what that's probably that's why they're suspicious. Yeah. The SEC has declined to comment about the case, but tech Crunch reported Rothenberg Ventures as being investigated for wire fraud, bank fraud, and breach of

fiduciary duty in law suits from investors and employees. It's been alleged that Mike Rothenberg used money intended for the startups for his own benefit to support his own lifestyle, and Francisco learned from emails he had downloaded from the firm that at one point Mike Rothenberg was paying himself about one million dollars, which is a huge amount for

a relatively small firm. But Rothenberg was also struggling to man it's it all last year, Rothenberg needed to provide documents and tax information and some return on investment to investors, and according to Francisco and some media reports, the money wasn't there. Okay, so this is a little bit complicated, but stick with us. The records show that River Studios, which if you remember, is one of the virtual reality businesses founded by Mike Rothenberg. This started perceived two million

dollars from an investor. The same day, River Studios transferred one point seven million dollars to Mike Rothenberg's personal account. Also on that same day, Mike Rothenberg transferred once again one point seven million dollars from his own account to the Rothenberg Ventures account. According to Francisco, that gave Rothenberg Ventures the money to meet the deadline of the other investors. By the way, that investor who wired the two million

has now sued Rothenberg. The lawsuit alleges that Rothenburg co mingled the bank accounts of his various entities, essentially treating the accounts of those businesses as as personal accounts. By the second half of last year, employees quit in mass and a class action lawsuit is working its way through the courts. It alleges that staffers weren't paid. Another former employee has sued for more than a hundred thousand dollars that alleges Rothenberg didn't repay for business charges that have

been put on a credit card. American Express is also sued for unpaid charges. I knew Mike Rothenberg a touch when I did that story back in so I reached out to him about Francisco and to get his side of the story. He didn't respond, but a person who works for a New York PR firm that specializes in crisis management and image rehabilitation reached out. He told me my wouldn't be available for an interview given the ongoing

investigations in lawsuits Adam. Did the spokesman comment at all about Francisco or the allegations made by him and in the lawsuits. He disputed Francisco's allegation that he was fired for speaking with SEC. He said that Francisco had already given notice that he was leaving. Francisco says this is not true. The spokesman also pointed out that Francisco had this run in with authorities for the bitcoin exchange. He was implying that undermines his credibility. But what about the

core allegations about misusing money. The spokesman declined to comment about the specifics, but Rothenberg did post a Facebook live video earlier this year to explain. So one of the things that I just wanna answer head on which I which I have done to the press, but they have not published it, and I want to be sure I'm very clear about this. Is the question I've had is you know, have you taken any money and properly and

answers know? And I've said that before and and uh, it continues to that message continues to knock it out there as clearly as it should. And another one is that have we made any investments without investor permission? We haven't.

We have not made any investments without investor permission. For those kinds of rumors going quickly, there has to be very responsible reporting, and um, there has to be fair and balance reporting, and there's a very big um, there's a very big weight on the shoulders of reporters because those um that particular group of people. The video goes on, and in it, he spends a lot of time blaming

the media for bias coverage. Adam, you spoke to a few professors to better understand what kind of trouble that Mike Rothenberg and his firm might be in what I learned is the SEC has been pretty vigilant in protecting whistleblowers, including bringing actions against those who retaliate. So that means it will be pretty difficult for Rothenberg to come after Francisco for going to the SEC. Yeah, and I also learned that Rothenberg could be in hot water, especially for

what appears to be mismanagement of funds. Like we talked about earlier, fidiciary duty is the bedrock of finance. It's that trust between an investor and a person like Rothenberg who's investing that money on their behalf. Do you think there's a risk of jail time here? People I spoke with didn't think so, but there's definitely a possibility of financial penalties. And even beyond that, Mike Rothenberg's reputations and tatters.

Now that's right, and Rothenberg was this really ambitious venture capitalist, but now that the firm is a bare bone staff and the reputation has really been hurt. In addition to speaking with the SEC, Francisco also began communicating with a few journalists about what he'd been finding at Rothenberg, under the condition that they wouldn't name him. At that point, while the firm's big spending and lavish events were well known,

the internal turmoil had been largely kept under wraps. But in the months after that, several very tough stories came out chronicling Rothenberg's questionable management of funds. Francisco says that he never regretted the decisions he made, but it did take a toll. After he says he was fired, he made a last minute decision to join some friends going on a seven day hike in Sweden. On the walks, he talked about the ordeal with Justin Chen, a friend

who's also a software engineer. It's sort of that I realized that, oh, he wants to leave this city because he's worried about this, this place he was working at where he was terminated. Uh, I got the sense he was worried about it about like Mike Rothenberg coming after

him personally for a while, like physically. Justin says that even though this hasn't been easy for Francisco, he's in a much better position than most software engineering jobs are in big demand, and he'll likely have an easier time finding another job than somebody else might. At Francisco's apartment, there's a messy bookshel off with some tea packets, notebooks, a few fantasy books, and on the top shelf we found one called The Whistleblowers Handbook, A step by step

guide to doing what's right and protecting yourself. Francisco said that he actually found the book only after he had gone through this whole experience of being a whistleblower himself, and he said he wished that he had read the book before approaching the SEC. Now he thinks more people will be coming forward in Silicon Valley. He says he hopes to inspire others to step up. Part it's a critical mass thing. Once you have a few of those stories out there, it's easier for more people to do it.

And then also I think that people are getting more fed up with the streatment. Like I feel like Silicon Valley is more unethical now than it was a few years ago. People are responding to that, and what why why do you think that? Um? I feel like just because Silting Valley's doing so well, it's attracting more more bad people. He wouldn't have come here ten twenty years ago. People who were in it for the money, people in

it for the easy money. Yeah. Francisco is now eight and he's working on a startup idea and email security program for businesses. He continues to work with the SEC and says he's available to be a witness in any of the lawsuits pending against Rothenburg. He also says he's been applying for some jobs he's invariably asked about his experience at Rothenburg. In one instance, he told them about his role blowing the whistle, just to see what the

response was. He said, there was a bit of nervous laughter, and then he didn't get a call back. Hey, it's me again in the present day. One of the reasons we wanted to check in with Francisco is because of a trial that just reached a conclusion in November. A former employee had sued Rothenberg Ventures and Mike Rothenburg to get reimbursed for expenses, and that former employee won the case. You hear us talk about that and more here it is so we ran our episode about you and May

how's life been. Um, it's been pretty stable since then. I started a job right around the time the podcast aired, so mainly I've been concentrating on that. Oh that's great. Shortly after that must feel pretty nice. You know. One of the worries that you had that you talked about with us was that you might not be employable, and now that you have this like whistle blower brand on you. Yeah, and ended up not really being an issue. That's great.

Can you tell us a little bit more about the job. Yeah, it's um about a fifty person um e commerce company. Is that is a bigger company than Brook Ventures? Was it is? It's about fifty people? And how does that feel to be part of a new organization? It feels good to be part of a real organization with proper hr and that whole thing exactly. Yeah. Is it it's a tech company okay, but not a venture capital firm? No? No? Yeah. Was there any blowback after you came went public with us?

Um a little bit. There was like one weird blog post, but otherwise other than that, not really. Yeah. Um, did you hear from your friends about that episode? Yeah? A lot of people texted me or emailed me. Yeah, like I saw the article or listened to the podcast. What they say? Um? Some people said like it's great what you did. Other people just like, oh that's cool. Yeah. Were you nervous about, you know, using your real name

in our podcast? Um? A little bit, But I mean there isn't really a story if it's all anonymous, right, and remind me again what made you want to go public? I just felt like my side of the story wasn't out there, so I just wanted to put the truth out there. Yeah. Are you glad you did it? Yeah? When you joined this new company, had they known about your history? Yeah? So it was a friend of mine who recruited me there, Okay, I've been telling about it

all along, so like they weren't surprised. Some of the people the company were, but not everyone. Did they talk to you about it? Yeah? The CEO took me aside and he told me that the board had talked about it. Really but he told me that they said good things. Oh that's great, that's great. That must have That must made you feel proud. Yeah, that was a good feeling. Um. You know. One of the reasons why I wanted to talk to you today is because the first lawsuit against

Rothenburg Ventures came to a conclusion. So I guess in that sense, you know, a former employee who sued Rothenburg Ventures one. How do you feel about that? I just feel like, you know things are going correctly. Yeah. Yeah. Did it give you a sense of closure in some ways? Um, a little bit. Maybe I'm a little more impatient, just waiting for the other investigations to wrap up. But other and that about where I was back in May. Yeah, I mean I think back when we talked to you,

are still weighing potentially taking legal action. Yeah, I still am. I'm actually talking to a lawyer in Chicago specializes in this kind of thing. So we're still weighing that as an option. Got it. And so this would be like for wrongful termination, Um, was slower retaliation? Got it. What would you say to people who are out there right now, who are you know who know that their compet employers are doing bad things and are thinking about potentially calling

out their employers for that behavior. Well, there's really no downside to going to the authorities because they keep it confidential. Um. But obviously going public to the press is different. Yeah. Yeah, yeah, so they have to weigh that. Sometimes it's worth it, sometimes it isn't. What made it worth it for you? Um, I didn't see a lot of down sides at that point to doing it, and I wanted to have my side out there. Yeah, And what was what were you

worried might happen? What? What did you think might be like the cons of going public for the you know, I might, I might bungle it, and people even if I try to get the truth out there, people might misinterpret it happens all the time, you know. I'm glad to see though, that you didn't leave the tech industry altogether. I'm kind of stuck here where my skill set is. Um, So what specifically are you doing at this new company.

I'm a senior software engineer. Okay, so working Ruby unrails mainly. Yeah, mainly back end Okay. Yeah, so it really does sound like here there's no way of leaving the industry. I'm just I'm glad to hear that, because, you know, I was worried maybe like you'd had enough with the industry in general and tried to leave altogether, like leave the area, leave the industry. Yeah. I might leave the area eventually,

but always be working in tech. I'll stay at this company for a while, um, and then probably at some point lead to start my own company around what. Um. The idea that I have in mind now is actually

getting public data from the SEC making it easy to search. Oh, that's interesting, So it's like kind of related to it is Yeah, Yeah, like SEC they have they have the site investor dot Gov for looking up UM investment firms, and it's really hard to search on it, so UM I've done a foil request to get all that data. I'm just gonna make an easy to use search interface so that experience you went through calling out Rothenburg Ventures eventually might end up leading to your next company. Yeah. Yeah,

and let's it for this week's episode of Decrypted. Thanks for listening. If you haven't already, please subscribe to our show wherever you get your podcasts and let us know what you think of the show. You can email us at Decrypted at Bloomberg dot net, or you can reach out to us on Twitter. I'm at Akio seven, and Adam, who reported the original episode, is at Satriano. This original episode, as well as updated conversation, was produced by pa Gitkari,

Magnus Hendrickson, and Liz Smith. We'll see you next week. M