Attorney General Ken Paxton charged with civil securities fraud

Ken Paxton (KXAN Photo)
Ken Paxton (KXAN Photo)

AUSTIN (KXAN) — The Securities and Exchange Commission has charged Texas Attorney General Ken Paxton with civil securities fraud. Paxton is accused of allegedly recruiting investors while hiding the fact that he was being compensated to promote the stock for Servergy Inc.

The charges also include the company and its founder, William E. Mapp. The SEC alleges the company and Mapp sold $26 million worth of company stock in private offerings while misleading investors to believe that the company’s sole product, Cleantech CTS-1000 server, was “especially energy-efficient.”

According to the SEC in a press release, the company marketed the Cleantech CTS-1000 server against top server makers like IBM, Dell, and Hewlett Packard. “However, neither Mapp nor Servergy informed investors that those companies were manufacturing high-performance servers with 64-bit processors while the CTS-1000 had a less powerful 32-bit processor that was being phased out of the industry and could not in reality compete against those companies,” according to the SEC.

Last summer, Paxton was charged with two first-degree counts of securities fraud and one third-degree count of failing to register with the State Securities Board. The counts date back to 2011 and 2012 while he was a member of the Texas House, representing District 70 in Collin County. According to the SEC’s complaint, Paxton raised $840,000 in investor funds for Servergy and received 100,000 shares of stock in return, but never disclosed his commissions to prospective investors while recruiting them. Servergy’s director Caleb White, who was accused of doing something similar, agreed to settle the SEC’s charges by paying $66,000 in disgorgement and returning his shares of Servergy stock to the company.

“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,” said Shamoil Shipchandler, Director of the SEC’s Fort Worth Regional Office.

Paxton told KXAN News in January he has no intention of leaving office, despite failed attempts to have a string of criminal charges against him dropped.

“We are fighting that battle in court, I’m innocent,” Paxton said. “[I will] continue to do my job every day. That’s what I was elected to do.”

 

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