April 11, 2016 / 5:36 PM / a year ago

SEC charges Texas attorney general for stock scam

3 Min Read

Texas Attorney General Ken Paxton is shown in this booking photo provided by Collin County.gov, near Dallas, Texas August 3, 2015.Collin County.gov/Handout via Reuters

(Reuters) - U.S. regulators charged Texas Attorney General Ken Paxton on Monday for his alleged role in a stock scam that defrauded investors in a Texas-based technology company called Servergy Inc.

The U.S. Securities and Exchange Commission accused the company and former Chief Executive Officer William Mapp of selling private stock while misleading investors about the energy efficiency of its sole product, and accused Paxton of working to raise investor funds for the company without disclosing his commissions.

The SEC's civil case followed a related criminal case against Paxton for securities fraud. Last year, a Texas state grand jury indicted Paxton on two fraud charges related to stock sales and compensation from Servergy.

Paxton, a Tea Party Republican, is also facing charges he illegally acted as a securities agent for another firm run by a political ally. A spokesman for Paxton has said the case was politically motivated.

"Like the criminal matter, Mr. Paxton vehemently denies the allegations in the civil lawsuit and looks forward to not only all of the facts coming out, but also to establishing his innocence in both the civil and criminal matters," said William Mateja, Paxton's lawyer.

Servergy, which cut ties with Mapp, agreed to a $200,000 penalty to settle the SEC case. Servergy neither admitted nor denied the agency's charges.

The case relates to investor communications made while Mapp led Servergy, the company said. Servergy cooperated with the SEC investigation under new leadership and considered Monday’s announcement the end of the matter, it said.

“Mr. Mapp vehemently denies the SEC’s allegations and intends to vigorously defend himself,” said Jason Lewis, Mapp's lawyer in Dallas.

The Texas attorney general's office declined to comment.

When in the state legislature, Paxton was hired to seek clients by investment firm Mowery Capital Management in McKinney, Texas. On March 16, Texas securities regulators ordered Mowery and its founder to pay a total of $90,000 in civil penalties for defrauding investors, according to a filing.

In 2014, Texas securities regulators also fined Paxton $1,000 for not properly registering as an investment adviser.

Paxton has sued President Barack Obama at least eight times since becoming Texas attorney general last year. Issues have included taxes under Obama's signature healthcare law and blocking resettlement of Syrian refugees in Texas.

The Texas Democratic Party has called for Paxton's resignation. A poll last year by the Texas Bipartisan Justice Committee showed 62 percent of Republicans also think he should resign.

Reporting by Suzanne Barlyn in New York and Jon Herskovitz in Austin; Additional reporting by Sarah N. Lynch; Editing by Jeffrey Benkoe and Alistair Bell

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