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SEC announces charge against Paxton

Embattled Texas Attorney General Ken Paxton is facing a new legal fight, this time from the Securities and Exchange Commission.

Embattled Texas Attorney General Ken Paxton is facing a new legal fight, this time from the U.S. Securities and Exchange Commission.

The SEC announced fraud charges against Servergy Inc. and its founder, William E. Mapp III, accusing them of boosting stock sales with false claims about a “supposedly revolutionary computer server and big-name customers purportedly placing orders to buy it.”

Included in the SEC’s complaint was Attorney General Paxton and a former member of the company’s board of directors, Caleb White, for “allegedly recruiting investors while hiding they were being compensated to promote the company’s stock.”

According to the SEC, while working in the Texas House of Representatives, Paxton allegedly reached an agreement with Mapp to promote Servergy to prospective investors in return for shares of Servergy stock.

The SEC alleges that Paxton raised $840,000 for Servergy and received 100,000 shares of stock in return. The filing states Paxton told investigators he offered to buy the stock from the company's co-founder during a meeting at a McKinney Dairy Queen, but was told by Mapp, "God doesn't want me to take your money."

The filing charges Paxton with peddling the stock without registering as a broker, as well as using pressure tactics -- including a late-night phone call to one investor who got cold feet -- all without ever mentioning he was getting paid.

"People recruiting investors have a legal obligation to disclose any compensation they are receiving to promote a stock, and we allege that Paxton and White concealed the compensation they were receiving for touting Servergy’s product," Shamoil Shipchandler, director of the SEC's Fort Worth Regional Office, wrote in a news release Monday.

Paxton already faces criminal charges in Collin County, and Democrats are again calling for his resignation. Texas Democratic Party executive director Emmanuel Garcia wrote in a statement, "Enough is enough. How many more investigations, criminal charges, and lawsuits need to be filed before Republican Ken Paxton takes responsibility for his lawlessness and resigns?"

The Office of Attorney General refused to comment, but his attorney, Bill Mateja, wrote in a statement:

"We understand that, earlier today, the SEC filed a civil lawsuit against Texas Attorney General Ken Paxton in connection with a company called Servergy, Inc. While neither Mr. Paxton nor his legal team have reviewed the civil lawsuit yet, we understand that the civil lawsuit revolves around the same allegations charged in the Collin County criminal matter.

As with the criminal matter, Mr. Paxton vehemently denies the allegations in the civil lawsuit and looks forward not only to all of the facts coming out, but also to establishing his innocence in both the civil and criminal matters.

While it isn’t surprising that the SEC filed this identical civil lawsuit, because it happens almost all of the time, it is surprising that the SEC chose to file this civil lawsuit nearly a year after the Collin County Special Prosecutors filed their criminal case, particularly where the civil lawsuit mirrors the criminal case."

The SEC said White has agreed to settle the charges with the SEC for $66,000 in ill-gotten gains and returning his shares of Servergy stock to the company. The SEC said the litigation against Paxton is ongoing and that his specific violation was of Section 17(b) of the Securities Act and Section 15(a) of the Exchange Act.

On the fraud charges, the SEC said Servergy and Mapp sold $26 million worth of company stock in private offerings while misleading customers “to believe that the Cleantech CTS-1000 server was energy-efficient. The SEC said Servergy’s server was being sold as a replacement to IBM, Dell, and HP servers, but the CTS-1000 “could not really compete” because it didn’t have the power the other servers did.

The SEC also said that when Servergy was running low on money, Mapp told investors that top companies were ordering the system including Amazon when the e-commerce juggernaut hadn’t placed an order.

According to the SEC, Servergy has cut ties with Mapp and the company paid a $200,000 penalty to settle the SEC’s charges while Mapp’s charges remain ongoing.

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