Ken Paxton surrendered to authorities and was indicted on securities fraud charges that stemmed from his work with Servergy. Paxton defrauded investors and his own colleagues. Paxton was then federally charged by the Securities and Exchange Commission and ordered to pay restitution and perform community service.
Paxton Surrendered To Authorities Following An Indictment On Multiple Felony Charges Related To A North Texas Company That Defrauded Investors. According to Chron, “Attorney General Ken Paxton is expected to surrender to authorities Monday following an indictment on multiple felony charges stemming from his involvement with a North Texas technology company accused of defrauding investors, according to multiple sources close to the case. A Collin County grand jury issued the indictment against the first-term attorney general on Tuesday, two sources who had been briefed on the proceedings told the Chronicle on Saturday. Paxton faces two counts of first-degree securities fraud and one count of third-degree securities fraud, with the most serious charges carrying a minimum sentence of five years in prison, special prosecutor Kent Schaffer told The New York Times. Schaffer said Paxton is accused of encouraging people, including current and former members of the Legislature, to invest more than $600,000 in a McKinney-based technology company called Servergy without telling them he was making a commission. He also misrepresented himself as an investor in the company that the U.S. Securities and Exchange Commission was investigating for defrauding stockholders as recently as December 2014. The first-degree charges each carry a sentence of five to 99 years in prison and a fine of not more than $10,000. The third-degree charge stems from his failure to properly register with the state as an investment adviser representative, which carries a sentence of two to 10 years in prison, as well as a $10,000 fine.” [Chron, 8/1/15]
Paxton Faced Calls For Resignation From His Position As The Attorney General Of Texas. According to Chron, “Paxton's spokesman on Saturday did not answer multiple calls, texts and emails requesting comment. The charges involve actions Paxton is accused of taking before he was elected attorney general last fall. Calls for Paxton's resignation surfaced almost immediately after the indictment news broke Saturday afternoon. Craig McDonald, executive director of the Austin-based advocacy group Texans for Public Justice, said the only appropriate response would be for Paxton to step aside. ‘How can you have faith in the Texas legal system if its top official remains in office while under indictment for felony securities fraud? That shouldn't be able to happen,’ said McDonald, whose group filed an early criminal complaint against Paxton.” [Chron, 8/1/15]
Paxton Was Federally Charged By The Securities And Exchange Commission. According to the Securities And Exchange Commission, “Also charged in the SEC’s complaint is Texas Attorney General Ken Paxton and a former member of the company’s board of directors for allegedly recruiting investors while hiding they were being compensated to promote the company’s stock[...] While serving in the Texas House of Representatives, Paxton allegedly reached an agreement with Mapp to promote Servergy to prospective investors in return for shares of Servergy stock. 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. Similarly, former Servergy director Caleb White allegedly raised more than $1.4 million for Servergy and received $66,000 and 20,000 shares of Servergy stock while never disclosing these commissions to investors. White has agreed to settle the SEC’s charges by paying $66,000 in disgorgement and returning his shares of Servergy stock to the company. The SEC’s litigation continues against Paxton. ‘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,’ Mr. Shipchandler said. The SEC’s complaint charges Servergy, Mapp, Paxton, and White with violating Sections 17(a) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. Servergy, Mapp, and White also allegedly violated Sections 5(a) and (c) of the Securities Act, and Paxton and White allegedly violated Section 17(b) of the Securities Act and Section 15(a) of the Exchange Act.” [Securities And Exchange Commission, 7/15/16]
After Nine Years, Paxton Struck A Deal With Prosecutors To Pay Restitution And Perform Community Service. According to the Associated Press, “HOUSTON (AP) — Texas Attorney General Ken Paxton on Tuesday agreed to pay nearly $300,000 in restitution under a deal to end criminal securities fraud charges that have shadowed the Republican for nearly a decade. The announcement by special prosecutors in a Houston courtroom came less than three weeks before Paxton was set to stand trial on felony charges that could have led to a prison sentence. It was the closest Paxton — who was indicted in 2015 — has ever come to trial over accusations that he duped investors in a tech startup near Dallas. Under the 18-month agreement, the special prosecutors would drop three felony counts against Paxton as long as he pays full restitution to his victims, and completes 100 hours of community service and 15 hours of legal ethics education. A former special prosecutor said the chance of a conviction was going to be ‘50-50.’ Paxton said little during the hearing, and he avoided reporters by leaving the court through a back door.” [Associated Press, 3/26/24]