SEC Files Charges Against AG Ken Paxton
Ken Paxton's mugshot after he was booked on three felony counts in July. Now, he's facing federal charges from the SEC.
Attorney General Ken Paxton is facing a new set of federal charges from the Securities and Exchange Commission related to his involvement with Dallas-based technology company Servergy, the Houston Chronicle's Brian Rosenthal first reported earlier today.
This morning, the SEC filed a civil lawsuit in federal court alleging Paxton and a former member of the Servergy's board of directors recruited investors "while hiding they were being compensated to promote the company’s stock," according to a press release. The Associated Press first reported last July that Paxton was included in the SEC's investigation of the company.
Paxton's connection to Servergy has been one of the most intriguing details about the AG's current legal woes. Before his indictment on state securities fraud charges last summer, the SEC had already accused Servergy of lying to investors by falsely claiming its data servers had already been sold to huge companies, like Amazon and Freescale. The SEC claims Servergy even lied to investors about the very servers the company was selling, falsely claiming the machines required 80 percent less cooling, energy and space than others on the market.
According to a press release announcing federal charges against Paxton and others, the SEC claims former Servergy CEO William Mapp sold millions of dollars in company stock by exaggerating his product's merits. As for Amazon's supposed interest in the company's servers, the press release states: "In reality, an Amazon employee had merely contacted Servergy because he wanted to test the product in his free time for personal use."
While serving in the Texas House of Representatives, the press release says, Paxton allegedly reached an agreement with Mapp to promote the company to potential investors in return for shares of stock. According to the 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.
“People recruiting investors have a legal obligation to disclose any compensation they are receiving to promote a stock, and we allege that Paxton [and the former board of directors member] concealed the compensation they were receiving for touting Servergy’s product,” said Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office.
Bill Mateja, an attorney for Paxton, said in a prepared statement to the Texas Tribune that his legal team had not yet reviewed the SEC's charges, but said that he "vehemently denies the allegations... 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."
Here's the entire complaint from the SEC: