In August 2017, Houston businessman Verley Lee Sembritzky, Jr. proclaimed that God sent him to Kenya and gave him a plan to develop a cutting-edge company that would bring clean, low-cost drinking water to 17 million people and make hundreds of millions of dollars for investors.
Sembritzky, who family and friends call Rocky, spent a couple years developing and then promoting the purported Kenyan desalination plant investment project, which needed $175.5 million in funding to become a reality, according to court documents.
On Tuesday, the U.S. Securities and Exchange Commission’s Fort Worth Regional Office filed charges in federal court in Houston claiming that Sembritzky and two of his companies – Bounty of the Ocean and Ocean Harvest – violated federal securities laws by operating a fraudulent investment scheme in which very little of investors’ money actually went into the Kenyan development.
Sembritzky defrauded 20 different individuals and businesses of $7.2 million, including 11 investors from Texas.
Only $650,000 of the $7.2 million raised made it to the project’s bank account, according to the SEC.
Sembritzky spent the rest of the money on luxury cars, jewelry, credit card debt and the purchase of a luxury apartment at the swank Kirby Condos for $2 million, which subsequently went to his ex-wife in a divorce.
Federal court documents show that Sembritzky and the companies have agreed to settle the charges with the SEC “without admitting or denying the allegations in the complaint” by paying $7.5 million in disgorgement and a civil penalty of $192,768.
Sembritzky also consented, according to court records, to a “permanent conduct-based injunction” that prohibits him from “directly or indirectly … soliciting or accepting funds from any person or entity for any unregistered offering of securities.”
The Texas Lawbook attempted to contact Sembritzky by phone and through social media messages to seek a comment, but those efforts were unsuccessful. Houston lawyer Alan Daughtry is representing Sembritzky in the case.
SEC Regional Director David Peavler said that the agency’s investigation was conducted by senior counsel Kimberly Cain and enforcement accountant Ty Martinez. SEC trial attorney Keefe Bernstein and SEC assistant directors David Reece and Eric Werner supervised the inquiry and enforcement.
“As we allege, the sales pitch here – providing safe drinking water in an ecologically friendly manner while returning a healthy investment profit – was calculated to push all the right buttons with investors,” Peavler told The Texas Lawbook. “But it was too good to be true and the defendants put most of investors’ money into their own pockets.”
The SEC claims that Sembritzky misled investors as to the viability of his desalination process, falsely assuring them that the technology had years of proven operational history. The complaint further alleges that Sembritzky also claimed they would reap outsized returns from sales of the lucrative minerals removed during the desalination process.
In August 2017, Sembritzky posted this on Facebook:
“How I ended up in Kenya is a very long story, but God put me there and gave me a plan. When you see people drinking water from a ditch, it will change you forever. The former President Mwai Kibaki started Vision 2030, which included getting clean drinking water to the estimated 17-20 million people in Kenya that do no [sic] have it. We became close friends and share the same vision. However, RBKL [Rasli Bahari Kenya Limited] will allow this to happen by 2020. Kenya has become my second home and the people are wonderful! Please follow along with our progress. We will break ground on the first facility by the end of this year. I can promise you that we will change the world, no person should be without clean drinking water, period!”
The SEC claims that Sembritzky developed a private placement memorandum seeking to raising $175.5 million for the project.
“The PPM did not authorize Sembritzky to use investor funds for personal use, and it did not disclose that any investor funds would be used for Sembritzky’s personal benefit,” the SEC complaint states.
“The misstatements and omissions in the PPM about how Sembritzky actually intended to use investor funds were false and misleading,” the SEC states. “Sembritzky knew at the time of the offering that he intended to spend the investor funds on personal expenses. He claims that his personal use of investor funds was part of a projected $15 million Intellectual Property License Payment listed in the PPM. However, the PPM did not disclose that all or any portion of this payment would go to Sembritzky, much less that it would be used for personal expenses (and not an IP license), or that it would come out of the first dollars raised from investors.”
Three of the investors, William O’Kane, Synergy Source and Azkarta Crest Corporation, have filed a federal fraud lawsuit against Sembritzky and his companies.
That civil case seems to be headed for trial after U.S. District Chief Judge Lee Rosenthal in August rejected Sembritzky’s request for summary judgment. In doing so, the judge stated that “the record presents strong circumstantial evidence that would support an inference of fraud.”
“Combine a colorful case of characters – an entrepreneur named ‘Rocky,’ his ex-wife Goldie Rose, and his girlfriend – with a luxury high-rise condominium purchased with funds allegedly obtained by defrauding the plaintiffs, investors in a never built Kenyan desalination. Project, and the result is … an unusual case,” Chief Judge Rosenthal wrote.