SEC Announces Charges in Scheme to Secretly Enable Lawbreakers to Run Microcap Company
The Securities and Exchange Commission today announced fraud charges against four individuals and a microcap company for concealing from investors that two lawbreakers ran the company.
According to the SEC’s orders instituting administrative proceedings, the mission of Natural Blue Resources Inc. was to create, acquire, or otherwise invest in environmentally-friendly companies, including an initiative to locate, purify, and sell water recovered from underground aquifers in New Mexico and other areas with depleting water resources. What investors didn’t know was that two individuals with prior law violations – James E. Cohen and Joseph Corazzi – secretly controlled the operational and management decisions of Natural Blue while calling themselves outside “consultants.” This arrangement enabled them to be de facto officers of Natural Blue and personally profit from the company without disclosing their past brushes with the law to investors. Cohen, who lives in Windermere, Fla., was previously incarcerated for financial fraud. Corazzi, who resides in Albuquerque, N.M., was previously charged with violating federal securities laws and permanently barred from acting as an officer or director of a public company.
“Cohen and Corazzi concealed their involvement through a so-called ‘consulting’ agreement, but their influence over the issuer spread much further,” said Andrew J. Ceresney, director of the SEC’s Enforcement Division. “Investors in Natural Blue had a right to know who was running the company behind the scenes.”
The SEC has suspended trading in Natural Blue stock. The other two individuals charged in the case are Toney Anaya and Erik Perry, who were former chief executive officers at Natural Blue. The SEC’s orders find that they misled investors by failing to disclose that Cohen and Corazzi were running the company in spite of their criminal or disciplinary histories.
Anaya, who is a former New Mexico governor and attorney general, and Perry each agreed to settle the charges. Anaya has cooperated extensively with the SEC’s investigation.
“Preventing past law violators from raising money in our markets is critical to preserving investor confidence,” said Paul Levenson, director of the SEC’s Boston Regional Office. “Natural Blue and its officers attempted an end-run around the rules designed to prevent recidivists from getting their hands on the controls of public companies.”
According to the SEC’s orders, Cohen and Corazzi created Natural Blue so they and other entities they controlled could receive money and stock from the company and profit by hundreds of thousands of dollars. While Natural Blue was ostensibly led by Anaya and subsequently Perry, management decisions made by Cohen and Corazzi resulted in no revenues or viable business operations for the company. Anaya and Perry each deferred to Cohen and Corazzi in derogation of their responsibilities. Natural Blue and Perry also made various material misrepresentations about the company, its contracts, and its anticipated revenue in a February 2011 press release as well as on a website and verbally to investors.
Anaya, who served as Natural Blue’s CEO from August 2009 to January 2011, has signed a cooperation agreement with the SEC in which he has consented to the entry of a cease-and-desist order without admitting or denying the charges. He will be barred from participating in any offering of a penny stock for at least five years. Any financial penalties will be determined at a later date.
Perry, who replaced Anaya and served as CEO until June 2011, agreed to settle the case by consenting to the entry of a cease-and-desist order without admitting or denying the charges. Perry, who previously resided in Massachusetts and currently lives in Bulgaria, agreed to pay a $150,000 penalty and be permanently barred from serving as an officer or director of a public company and from participating in any offerings of penny stock.
The SEC’s orders charge Natural Blue, Cohen, and Corazzi with violations of Section 17(a)(1) and (a)(3) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and 10b-5(c). The orders also charge Natural Blue with violations of Section 17(a)(2) for misrepresentations made to investors in press releases and public filings, and violations of Section 15(d) of the Exchange Act and Rules 15d-1 and 15d-13 by failing to make required SEC filings.
The SEC’s investigation was conducted by Thomas Rappaport, Amy Gwiazda, Sofia Hussain, and Rua Kelly in the Boston Regional Office. Rua Kelly and Mayeti Gametchu will handle the litigation. The SEC appreciates the assistance of the Federal Bureau of Investigation.