In 2003, then 50 -year-old Curtiss E. Jackson, a California resident (“CEJ”), founded two entities: Semisub CA and Semisub LLC, “with the stated purpose of constructing and later operating a partially submersible vessel for tourism.” The vessel, “Semisub One,” was “marketed to investors as a catamaran-style boat with windows that would be fully submerged underwater for better viewing.”  He worked with his wife, Jamey Denise Jackson (of Lake Worth, Florida, as of 2022, “JDJ”), then 39, to operate the businesses. In 2005, CEJ “began raising funds from investors by selling membership interests in the] LLC, and a year later, by selling shares in Semisub CA.”

In 2009, the California Department of Corporations “issued desist-and-refrain orders… against both entities and” CEJ.  In response, CEJ “formed Semisub as a Nevada corporation” (“Semisub”) and transferred the assets of the two California entities to Semisub. In November 2010, defendants relocated Semisub from California to its present locale in Hawaii. During all this time through 2022, the defendants “solicited investments, assuring investors Semisub One was under construction and would soon be ready.” However, the “boat was not legally operable until July 2019 when Defendants …obtained a certificate of inspection for Semisub One from the U.S. Coast Guard” (“USCG”).  Some months later, the USCG “shut down” the boat due to problems with its engine, and “Semisub ceased operations entirely in March 2020 at the beginning of the Covid-19 pandemic.” On Feb. 1, 2022, CEJ sent an e-mail to investors stating that they planned to reopen soon.

Between January 2017 and February 2022, the defendants raised “approximately $4.7 million” from at least 129 individuals. The defendants sometimes used a private placement memorandum (“PPM”) drafted in 2009 as a selling document (and sometimes, just a subscription agreement that referred to the PPM), distributed through third-party shipping and mailing services such as UPS. The PPM stated that investor funds would be used to make loans to the LLC to complete the construction and subsequent operation of Semisub One and that the loans would bear interest at 10% per year.

The defendants frequently assured investors that the boat was almost completed, but that additional funds were needed to finish the job. Investors were also told that the company planned to build a fleet of semisubmersible boats for sale, and that third parties were ready and eager to buy them. In the summer of 2017, CEJ claimed that a marine engineering firm was working on two specially designed vessels for use by the U.S. Department of Homeland Security and by “an organization named Marine Biology Studies.” Neither statement was true. Some of the Semisub communications identified potential third-party investors, including the private equity fund BlackRock, but again, none of them were true. JDJ, as President of Semisub, was responsible for distributing the PPMs and subscription agreements, as well as communicating with investors by telephone and e-mail. She also “maintained the records regarding investments, managed the books and bank accounts of Semisub, and participated in the preparation and review of investor update emails.”

No loan documents exist evidencing loans made to the LLC (in fact, it is uncertain that monies were lent), and the LLC did not pay any interest on any supposed loans to Semisub. Instead, CEJ and JDJ misappropriated approximately 1/3 of the investor funds raised to pay for personal expenses, including the following:

• $8,500 per month for rent on their Hawaiian residence;

• $2,300 per month for the mortgage on their California home;

• $1,400 for rent on car leases (including a Mercedes for CEJ);

• $27,000 for annual food costs;

• $23,000 for retail expenses including clothing, haircuts, and nail salons;

• over $167,000 for credit card bills;

• and over $200,000 cash for psychics, recreational drugs, and the like.

In addition, Semisub paid JDJ an annual salary of $150,000 from September 2017 through March 2020. The Complaint asserts that “given their marital status and control over Semisub’s operations and bank accounts, [the two of them] effectively acted as partners in the misappropriation of investor funds. They engaged in concerted wrongdoing to benefit themselves substantially and defraud investors.” The two of them “routinely refused to provide financial information to investors,” and when any financial information was provided, “those documents were misleading and omitted any reference to… using investor funds for…” [the] personal benefit of CEJ and JDJ.

The Complaint alleges that the defendants violated both Section 17(a)(1) of the Securities Act of 1933, as amended (the “33 Act”), by using a device to defraud in the offer or sale of securities; and Section 17(a)(3) of the 33 Act by engaging in a course of business that operates as a fraud on the purchaser of securities; as well as violating Section 10(b) of the Securities Exchange Act of 1934, as amended (the “34 Act”), and Rule 10b-5 thereunder, by using a scheme to defraud in connection with the purchase or sale of securities. In addition, CEJ and Semisub are alleged to have violated Section 17(a)(2) of the 33 Act by offering securities using an untrue statement of material fact or an omission of similar magnitude; and Section 10(b) of the 34 Act and Rule 10b-5 thereunder by similarly using untrue statements or omissions of material facts in connection with the purchase or sale of securities. It is not necessary for the SEC to prove scienter in order to obtain a judgment for violating the 33 Act.

The Commission seeks:

• a permanent injunction against all defendants prohibiting them from future violations of the cited securities laws;

• disgorgement of their ill-gotten gains together with payment of prejudgment interest;

• and payment of a civil penalty consistent with the securities law statutes.

The investors in Semisub had their money at risk for up to five years. One cannot tell whether they were driven by the possible profits from a successful investment, or whether they were enchanted by an opportunity to own an interest in a semisubmersible vessel used for sightseeing in the waters off Hawaii, or both. Whatever the motive or motives, it remains the case that when a proposal looks too good to be true, it is not just “underwater,” it is fraud.