Feds File Fraud Charges Against Ken Paxton

Federal securities regulators hit Texas attorney general Ken Paxton with fraud charges Monday. Paxton faces civil charges for allegedly recruiting investors for a high-tech startup without disclosing the company was paying him.

The alleged violations happened before Paxton became attorney general. The SEC claims Paxton raised 840-thousand dollars in investment funds for Servergy and, in return, Servergy gave him 100-thousand shares of stock. Paxton, a Republican, is already under felony criminal indictment in Texas over allegations that he defrauded wealthy investors in the company in 2011.

In a statement this afternoon, Paxton’s attorney said the attorney general “vehemently denies the allegations.”

Here’s attorney Bill Mateja’s full statement:

“Texas Attorney General Ken Paxton understands that, earlier today, the SEC filed a civil lawsuit against him in connection with a company called Servergy, Inc.  While neither Mr. Paxton nor his legal team have reviewed the civil lawsuit yet, we understand that the civil lawsuit revolves around the same allegations charged in the Collin County criminal matter.  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.  While it isn’t surprising that the SEC filed this identical civil lawsuit, because it happens almost all of the time, it is surprising that the SEC chose to file this civil lawsuit nearly a year after the Collin County Special Prosecutors filed their criminal case, particularly where the civil lawsuit mirrors the criminal case.”


Here’s the full press release from the SEC:

SEC: Company Misled Investors About Energy-Efficient Technology


Washington D.C., April 11, 2016  The Securities and Exchange Commission today announced fraud charges against a Texas-based technology company and its founder accused of boosting stock sales with false claims about a supposedly revolutionary computer server and big-name customers purportedly placing orders to buy it.

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.

The SEC alleges that Servergy Inc. and William E. Mapp III sold $26 million worth of company stock in private offerings while misleading investors to believe that the Cleantech CTS-1000 server (the company’s sole product) was especially energy-efficient.  They said it could replace “power-hungry” servers found in top data centers and compete directly with top server makers like IBM, Dell, and Hewlett Packard.  However, neither Mapp nor Servergy informed investors that those companies were manufacturing high-performance servers with 64-bit processors while the CTS-1000 had a less powerful 32-bit processor that was being phased out of the industry and could not in reality compete against those companies.

The SEC further alleges that when Servergy was low on operating funds, Mapp enticed prospective investors by falsely claiming well-known companies were ordering the CTS-1000, and he specifically mentioned an order purportedly received from Amazon.  In reality, an Amazon employee had merely contacted Servergy because he wanted to test the product in his free time for personal use.

Servergy has since cut ties with Mapp, who served as CEO.  The company agreed to pay a $200,000 penalty to settle the SEC’s charges.  The litigation continues against Mapp in U.S. District Court for the Eastern District of Texas.

“We allege that Mapp deceived investors into believing that Servergy’s groundbreaking technology was generating lucrative sales to major customers when it was technologically behind its competitors and made no actual sales,” said Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office.

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.

Servergy and White neither admitted nor denied the SEC’s charges in their settlements.

The SEC’s investigation was conducted by Samantha S. Martin and Carol J. Hahn and supervised by Jessica B. Magee and David L. Peavler in the Fort Worth office.  The SEC’s litigation will be led by Matthew J. Gulde and Ms. Magee.


Here’s the response from Texas Democrats:

Texas Democratic Party Deputy Executive Director Emmanuel Garcia issued the following statement:

“Enough is enough. How many more investigations, criminal charges, and lawsuits need to be filed before Republican Ken Paxton takes responsibility for his lawlessness and resigns?

“First, we learned Ken Paxton was swindling his investors and fellow Texans. Then, he ran afoul of the Texas Rangers. All along, Paxton sought out white-collar treatment from Texas courts. He is already facing over 99 years in jail for felony fraud. But the lawlessness is not over, today, the U.S. Securities and Exchange Commission filed a new civil securities fraud lawsuit against the Republican.

“Texas Democrats know that no politician should ever be above the law. We renew our call for Ken Paxton to spare Texas further embarrassment, take responsibility, and step down.”



We will have more on this story tonight at 7 on Capital Tonight.


Rick Perry’s Abuse of Power Case Officially Dismissed

Following a Court of Criminal Appeals decision that all but ended the case, the special prosecutor who secured the grand jury indictment against former Texas Gov. Rick Perry on Wednesday said he will not pursue an amended indictment. The presiding judge, Bert Richardson, signed a dismissal of the case.

Perry’s legal team continues to say the case should have never happened.

“I told all of you from the beginning it would ultimately be dismissed,” Perry’s lead lawyer, Tony Buzbee, told reporters today. “It was dismissed today because it lacked merit on both facts and the law. I just wish it would have been dismissed sooner,” he said.

Buzbee also said he asked the judge to provide his team with a transcript of the grand jury proceedings. “We feel like Mr. McCrum must have said some things that are probably actionable to that grand jury based on the people we know testified and the facts as we know that and we’re going to explore that. So although this criminal case is over, our investigation into how this came about certainly is not,” Buzbee said.

Meanwhile, special prosecutor Michael McCrum said he is 100 percent confident he handled the case appropriately. He said the law guards the confidentiality of those proceedings for good reason.

“Mr. Buzbee should know that,” McCrum said. “I don’t know, he handles snake bites and car wreck cases.”

McCrum also said he considered keeping the case going by amending the indictment because he believes Perry committed a crime.

But he said he won’t because the Texas Court of Criminal Appeals ruling in the case ‘muddied’ the law.

“Am I sore about the fact that the law now is so muddied that it makes it difficult to prosecute any public official for their acts of threats and their use of power in an inappropriate way? Yeah, I’m sore about that. I’m disappointed. I’m upset,” McCrum said.

The case stems from the former governor’s 2013 threat to veto funding for a unit of the Travis County District Attorney’s office unless its head step down following a drunken driving conviction.

She didn’t, and Perry’s attorneys said the former governor was within his rights to follow through on vetoing the funding.

Texans for Public Justice filed a complaint saying Perry went too far. The complaint led to the 2014 indictment of Perry. He was accused of coercion of a public servant and abuse of official capacity.

A lower appeals court tossed out the coercion charge last year. Then in February, the Court of Criminal Appeals threw out the remaining charge.






Daily Digest | April 4

Our daily digest is a mid-day update on the stories we’re following in Texas politics today. Here’s what we’re watching:


The U.S. Supreme Court handed Texas a victory today. It upheld the state’s system of drawing legislative voting districts based on everyone who lives there, not just registered voters. On the show tonight, we’ll bring you reaction from Texas leaders on both sides of the issue, including one of the plaintiffs in the case.


Plus, all eyes are on Wisconsin ahead of that state’s primary Tuesday. For the Republicans running for President, the Badger State could play a huge role in their paths going forward. Our LeAnn Wallace takes a look at what the Cruz campaign strategy involves in order to win the lion’s share of the state’s 42 delegates.


Tune to Capital Tonight on Time Warner Cable News at 7 for these stories and more. We also welcome Charles O’Neal to the show as our guest. He’s the president of the Texas Association of African American Chambers of Commerce. He’ll discuss what his organization is doing to boost black-owned businesses in the state.



Supreme Court Rejects Challenge to Texas Districts

Texas was handed a victory Monday morning. The United States Supreme Court voted unanimously to uphold the state’s system of drawing legislative voting districts based on everyone who lives there, not just registered voters. Two rural Texans challenged the state’s method arguing their votes were diluted.

But the high court rejected the plaintiffs’ argument saying representatives serve all residents, “not just those eligible or registered to vote.”

The decision excited Texas Democrats the most. That’s because it likely boosts the voting power of the state’s booming Latino population.

Republican Attorney General Ken Paxton became an unlikely ally of Democrats on the issue.

He supports his state’s system for drawing districts and applauded the justices’ ruling.



We’ve compiled a list of state leaders reaction to the decision:

Texas Attorney General Ken Paxton today released the following statement regarding the 8-0 victory in the U.S. Supreme Court in Evenwel v. Abbott:

“We are pleased with the unanimous decision of the Court.  My office is committed to defending the Constitution and ensuring the state legislature, representing the citizens, continues to have the freedom to ensure voting rights consistent with the Constitution.”


Texas Democratic Party Chairman Gilberto Hinojosa issued the following statement:

“Today, in a unanimous opinion, the Supreme Court reaffirms that every single person in America deserves a voice. Our elected representatives should be responsive to every one’s needs, not just those that can bring them to power. Every person matters.

“This is a victory for our democracy and every Texas family. For decades, the democratic principle of ‘one person, one vote,’ has ensured everyone in America, regardless of who they are or where they live, is entitled to equal representation. Evenwel threatened a returned to darker days when certain people were easily left behind by their government.

“Texas Democrats know that our democracy is stronger when everyone has a seat at the table. To strengthen our communities we should be encouraging more people to join us. We pray that Tea Party Republicans finally drop their efforts to make it harder to vote, silence the voice of voters, and weaken the power of Texas’ diverse communities.”


Lone Star Project Director Matt Angle statement:

“Today’s unanimous decision by the U.S. Supreme Court turned back a direct attack on one-person, one-vote. It is an enormous victory for Democratic and American values.  “It’s no accident that this case originated in Texas. The forces that filed the suit and pursued it all the way to the U.S. Supreme Court reflect the dark and dangerous view that power should be concentrated in the hands of a very few. Keep in mind that current Texas leaders adopted and have spent millions of dollars defending discriminatory redistricting and Voter ID laws. Their recent actions have created an environment that encourages and accommodates those who hold basic civil and voting rights in contempt.”

State Representative Trey Martinez Fischer, Chairman of the Mexican American Legislative Caucus, issued the following statement:

“Today’s ruling by the U.S. Supreme Court is a victory for voting rights, and I am proud that MALC’s work helped the High Court reach this important decision.

“‘One person, one vote’ is a cornerstone of our democracy. It is simple: when we ensure equal representation, we ensure that every single voice matters.

“Eliminating non-voters from the drawing of election lines would have had a devastating effect on Texas and on the Latino community. While we cheer today, voting rights remain under attack in America. It is time for Congress to restore the Voting Rights Act. It is time for Texas to make it easier to vote, not harder.”


ACLU Legal Director Steven R. Shapiro said:

“This decision is a victory for the principle of representative democracy. There is a reason that every state has chosen to apportion its state legislative districts based on total population. Government actions affect everyone, not just eligible voters. The argument that states are forbidden from treating everyone equally for redistricting purposes never made any constitutional sense and was properly rejected today by a unanimous Supreme Court.”


Read the full decision here:


Daily Digest | March 31

Our daily digest is a mid-day update on the stories we’re following in Texas politics today. Here’s what we’re watching:


State lawmakers have been busy this week holding interim committee hearings. Today we checked in on the joint hearing of the International Trade and Intergovernmental Affairs and the Agriculture and Livestock committees exploring the impact that an open US-Cuba trading relationship would have on Texas.  Hear from business owners on Capital Tonight at 7pm.


Black business groups say the state can do more to provide better opportunities for black entrepreneurs.

A 2014 survey done by the Texas Association of African American Chambers of Commerce says there are less than 10-percent of black owned businesses in the state.

And black-owned businesses on average employ only ten people.

Today, the group hosted Governor Abbott for their Black Business Day event at the State Capitol.

They say Abbott has been more responsive to working with black business owners compared to former Governor Rick Perry.

“I want to see the state of Texas succeed, that is my goal. The state of Texas is not going to succeed if anybody gets left behind,” Governor Abbott said.

Abbott said to create that success, he also wants to keep raising high school and college graduation rates among black students in the state.


We are also taking a closer look at Higher Education in the state tonight. Our guest is Higher Education Coordinating Board Commissioner Raymund Paredes. Hear why he thinks Texas isn’t doing enough to prepare kids for college and what he wants to see put in place.



We’re Back!!!!!

The Capital Tonight Blog took a little hiatus while the CT team underwent a transition period over the past couple of months. But we’re back, fully staffed and ready to keep you up to date on the latest political developments throughout the day as they happen. We also hope you’ll join us weeknights at 7pm on Time Warner Cable News for our 30 minute show that features in-depth stories and analysis from our expert contributors.

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Karina Kling, Capital Tonight Anchor

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Statements on SCOTUS ACA Ruling

We have compiled all the statements we have received from Texas lawmakers about today’s Supreme Court ruling on the Affordable Care Act. We will continue to update this post as more come in.


Governor Greg Abbott (R):

“The Supreme Court abandoned the Constitution to resuscitate a failing healthcare law. Today’s action underscores why it is now more important than ever to ensure we elect a President who will repeal Obamacare and enact real healthcare reforms.”

More >

Daily Digest | June 9

Our daily digest is a mid-day update on the stories we’re following in Texas politics today. Here’s what we’re watching:

The 5th Circuit Court in New Orleans has issued a ruling on the controversial 2013 abortion bill, HB2. The ruling, which can be read in full here, found much of the bill constitutional, exempting only the Whole Woman’s Health clinic in McAllen:

In plain terms, H.B. 2 and its provisions may be applied throughout Texas, except that Supreme Court precedent requires us to partially uphold the district court’s injunction of the ASC requirement as applied to the Whole Woman’s Health abortion facility in McAllen, Texas, and to uphold the district court’s injunction of the admitting privileges requirement as applied to Dr. Lynn when he is working at the McAllen facility.

The bill requires abortion clinics to meet the same standards as hospital-style surgical centers and mandates that a doctor have admitting privileges at a hospital within 30 miles of the facility where he or she performs abortions. This ruling is a major win for those opposed to abortion in the legal challenge against the bill. Nancy Northup with The Center for Reproductive Rights released a statement saying:

“Again, women across TX face the near total elimination of safe & legal options for ending a pregnancy.”

Meanwhile, Governor Greg Abbott put pen to paper on the Legislature’s omnibus border security bill this morning. The Governor held a ceremony at DPS Headquarters in Houston. House Bill 11 would send more DPS troopers to the border, and would also create a multi-agency crime information center in Hidalgo County. Critics have raised concerns about over-militarizing the area. More than $800 million of this year’s budget plan has been set aside for border security, about twice as much as last session.

For all these stories and more, tune in to “Capital Tonight.” Our guest tonight is Laura Prather with the Freedom of Information Foundation of Texas. She’ll give us her take on how legislation regarding government transparency fared this session. Plus, political strategist Harold Cook will look ahead to the road map for presidential candidates trying to win in 2016. Tune in to Time Warner Cable News, tonight at 7 and 11.

Daily Digest | June 3

Our daily digest is a mid-day update on the stories we’re following in Texas politics today. Here’s what we’re watching:

The dust may still be settling from the final gavel of the 84th Legislature, but we are already looking ahead to 2016. Former Governor Rick Perry is expected to announce his presidential ambitions at the Addison Airport outside of Dallas tomorrow. Follow Karina Kling (@KarinaKling) as she heads to Dallas. We’ll check in with her tonight from the spot where Perry is speaking, and talk about his campaign efforts so far.

Mitch Goulding (@MitchTWCN) is sitting down with the people behind Mothers and Sons, a play at the Zach Scott Theatre this month addressing same-sex marriage. With a looming Supreme Court decision that could alter the legal rights of same-sex couples forever, he’ll look into the changing perception of the LGBT community over the decades, and the effect that may have had in the last legislative session.

Finally — last night, we sat down with Rep. Jimmie Don Aycock, who announced Monday he is stepping down after nearly a decade in the Legislature. We talked about his time at the Capitol, and how he sees Texas politics shaping up in the future. Check out that conversation here.

Make sure to tune in to Capital Tonight at 7 and 11 for more on all of this. We’re joined tonight by Rep. Jason Isaac (R – TX House District 45) to talk about the flood recovery happening in his district and his signature water bill that passed in dramatic fashion this session. Plus the Quorum Report’s Harvey Kronberg will provide his perspective on all the week’s stories. Tune in on Time Warner Cable News in Austin and San Antonio.

Daily Digest | June 1

Our Daily Digest is a lunchtime look at the stories we have our eyes on at the Capitol and beyond. Here’s what we are watching today:

The 84th Legislative Session has officially come to a close. Both chambers officially gaveled out for the final time this year early this afternoon. It comes after a jam-packed weekend that sent a flurry of bills to the governor’s desk, including the campus carry bill, the final vote on open carry, legalizing a form of medical cannabis oil and changing the way individual schools are graded. It also marked the end of several lawmakers’ tenures in the Legislature. Rep. Sylvester Turner (D – TX House District 139), Rep. Jimmie Don Aycock (R – TX House District 54), Rep. Allen Fletcher (R – Texas House District 130) and Rep. Joe Farias (D – TX House District 118) have all announced they will not be returning for the next session in 2017. Some have other political aspirations, others are returning to private citizenship.

Make sure to tune in to Capital Tonight at 7 and 11 tonight for a special Sine Die edition to cap off the 84th Legislative Session. We’ll be joined by political strategists Harold Cook and Ted Delisi as well as Harvey Kronberg from the Quorum Report. We’ll look back on the key takeaways from the session, the biggest policy decisions affecting Texans, and the political implications for state lawmakers moving forward. Tune in on Time Warner Cable News in Austin and San Antonio.