Texas

SEC revives federal fraud case against Texas attorney general

The U.S. Securities and Exchange Commission on Friday refiled federal fraud charges against Texas Attorney General Ken Paxton, reviving a civil lawsuit that was recently thrown out for lack of evidence.
The U.S. Securities and Exchange Commission on Friday refiled federal fraud charges against Texas Attorney General Ken Paxton, reviving a civil lawsuit that was recently thrown out for lack of evidence. Austin American-Statesman

The U.S. Securities and Exchange Commission on Friday refiled federal fraud charges against Texas Attorney General Ken Paxton, reviving a civil lawsuit that was recently thrown out for lack of evidence.

In the new filing, the federal government alleges that Paxton was involved in an investment group that had agreed that no member would pitch a company if they were receiving an additional perk not available to the group’s other members. In suggesting that they invest in the North Texas tech startup Servergy while getting paid a commission by the company, he was knowingly deceiving them, the suit claims.

“There was an expectation that if one member of the group was going to benefit from a deal, he would disclose that benefit,” the lawsuit states. “Paxton’s conduct, practice, and course of business operated as a fraud and deceit.”

The amended complaint also alleges that Paxton did not properly disclose his commission on either his taxes or financial documents he’s required to file with the state: “Paxton characterized this payment at various times as an investment for which he paid $100,000, as compensation for legal services, and as a gift in order to disguise or conceal its true nature from the investors that he recruited, from federal regulators, and from the public.”

In a prepared statement released late Friday, Paxton’s attorney Matthew Martens said the attorney general’s legal team was “disappointed by the SEC’s decision to continue this case.”

Two weeks ago, U.S. District Court Judge Amos Mazzant III threw out the charges against Paxton, saying the SEC failed to show he broke any disclosure laws in recommending Servergy and receiving the commission without telling potential investors.

Paxton’s supporters heralded the ruling as a major win for the first-term Republican attorney general, who is also facing three criminal indictments in Texas based on the same allegations. But Mazzant gave the federal government the opportunity to refile the charges in case they believed they had evidence previously undisclosed that would prove wrongdoing.

Former Servergy CEO William Mapp III and Caleb White, who also pitched the company to investors without disclosing his commission, are accused of fraud in the lawsuit. The state criminal charges, however, apply only to Paxton.

In that case, which will likely head to trial sometime next year, Paxton faces three felony indictments for allegedly violating state securities laws. Paxton allegedly received 100,000 shares of Servergy stock for bringing in $840,000 in investments from seven friends, legislative colleagues and legal clients. The members of the investment club pitched in $640,000, or 25 percent of all investment funds the company received in 2011.

The alleged wrongdoing dates to 2011, when Paxton was representing McKinney as a member of the state House.

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