US sues citizen in Sh0.8bn in fake Kenya water project

An abandoned water project in Kenya.

The United States markets regulator has filed charges against an American who defrauded American investors $7.2 million (Sh788.3 million) for a fake desalination project in Kenya. Verley Lee “Rocky” Sembritzky, Jr. collected money from unsuspecting Americans and instead used part of the money to buy luxury cars, jewelry, and watches, a condominium for his then-wife and pay off personal credit cards with $2 million (Sh219 million).

Through his company Bounty and Ocean Harvest Mr Sembritzky had claimed that the salt water cleaning plant could generate revenues of up to $20 million (Sh2.19 billion) annually while providing safe drinking water for all of Kenya.

According to filings by US Securities Exchange Commission (SEC) Mr Sembritzky promoted the desalination plant as unique and able to utilise everything and waste nothing, eliminate pollution, protect marine life, and yield outstanding returns to investors. Based on an elaborate, scientific-looking diagram he had explained how the process worked claiming he had been working on desalination technology since 2006. The SEC however said it was all a hoax.

“Sembritzky knew, however, that when the process, as described in the PPM (private placement memorandum), was tested at some point before 2017, it did not work…Sembritzky knew his representations and omissions to investors about the process were, at a minimum, misleading,” SEC said in court filings. Despite this, Mr Sembritzky went out to get funds for the project through a private placement in Kenya and the US.

He wanted to raise Sh2.19 billion from American investors for pre-construction costs associated with the Project and the rest $175 million (Sh19.1 billion) would come from Kenyan investors. Investors were told that they could purchase stock in the Project Entity at $175,500 (Sh19.2 million) per share, and their investment would “yield outstanding returns from the project.

He was able to collect Sh788.3 million between 2015 and 2017 from at least 20 investors in the US. Mr Sembritzky had directed investors to send their investment funds to Bounty or Ocean Harvest accounts. Within days—and in several instances, the same day—of receiving investor funds, Sembritzky transferred the funds from the purported operating accounts to his personal bank accounts. He withdrew a total of approximately $6.4 million (Sh700 million) from the Bounty and Ocean Harvest bank accounts in the form of cash withdrawals or transfers to his personal accounts.

Of the Sh788.3 million raised from investors, the project’s bank account in Kenya received only about $650,000 (Sh71.1 million) of investor funds. “Because Defendants took nearly all of the investor funds for Sembritzky’s personal use, the Project Entity did not receive those funds for the pre-construction costs described in the PPM,” SEC said in filings. In his defense,

Mr Sembritzky claims that his personal use of investor funds was part of a projected $15 million (Sh1.6 billion) Intellectual Property License Payment listed in the private placement offer.

SEC said the memorandum 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.

The regulator said Sembritzky had created a one-page side agreement that said Sh1.6 billion licence payment was a loan to himself that he would pay back to the company after the first year of operations. “Defendants’ use of this undisclosed side agreement to misappropriate investor funds was deceptive,” SEC said.

Source: Business Daily Africa,