Technology

Texas AG Accused Over Promotion of Tech Stock

The SEC says Ken Paxton hyped Servergy to investors without disclosing he had been paid for his promotional efforts.
Matthew HellerApril 11, 2016

The U.S. Securities and Exchange Commission has charged Texas Attorney General Ken Paxton with failing to disclose that a North Texas tech firm had paid him to promote its stock.

Paxton’s relationship with Servergy Inc. is part of an SEC investigation that also resulted Monday in securities fraud charges against the firm’s founder, William Mapp. According to a civil complaint, Paxton, while serving as a Texas state legislator, raised $840,000 for Servergy and received 100,000 shares of stock in return for his “successful efforts,” but never disclosed his commissions to prospective investors.

The civil charges come on top of a criminal securities fraud case that was filed against Paxton in August. He has pleaded not guilty in that case.

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“People recruiting investors have a legal obligation to disclose any compensation they are receiving to promote a stock,” Shamoil T. Shipchandler, director of the SEC’s Fort Worth regional office, said in a news release.

Mapp is accused of making false claims to investors that Servergy was developing a revolutionary, energy-efficient computer server and big-name customers were placing orders to buy it. According to the SEC, Paxton met with Mapp on July 12, 2011 and, within 10 days, invited a group of prospective investors to a pitch at Servergy’s office.

By July 28, 2011, five of the 12 prospective investors Paxton recruited had invested a total of $840,000 in Servergy. He received his stock in the company on Aug. 5, 2011.

“Paxton told prospective investors that he had … determined that [Servergy] was a great company and the investment presented an interesting opportunity,” the SEC said.

During the SEC’s investigation, Paxton claimed his shares were a gift from Mapp. According to Paxton, he had intended to invest $100,000 of his own money in Servergy but Mapp refused his investment, saying, “I can’t take your money. God doesn’t want me to take your money.”

“The shares were not a gift but, instead, a sales commission paid to compensate Paxton for the investors he recruited,” the SEC alleged.

Paxton’s attorney said he “vehemently denies the allegations in the civil lawsuit” and “looks forward … to establishing his innocence in both the civil and criminal matters.”

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