APNewsBreak: Texas attorney general's name listed in federal securities probe documents

Markets Associated Press

Texas Attorney General Ken Paxton, whose admitted violations of state securities laws will go before a grand jury this month, has also figured in a federal investigation of a Dallas-area technology company suspected of defrauding investors.

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Paxton owns at least 10,000 shares in Servergy Inc., a company based in his hometown of McKinney. The U.S. Securities and Exchange Commission began investigating Servergy in 2013 after receiving complaints, according to federal court records reviewed by The Associated Press. The records show Paxton's name was singled out as a search term to satisfy an SEC demand for documents and Paxton's law firm email address was among a lengthy list of Servergy contacts searched as part of the SEC's investigation.

Special prosecutors overseeing the Paxton investigation have said they will ask a grand jury meeting in Collin County to indict the state's top attorney for first-degree felony securities fraud in a case stemming from his solicitation of investment clients several years ago while in private practice. The prosecutors have also indicated they may present charges involving a separate but undisclosed matter against the Republican who succeeded now-Gov. Greg Abbott as the state's top law enforcement officer.

Both the SEC and special prosecutors declined comment. Paxton attorney Joe Kendall, asked about his client's role with Servergy, said only, "Grand jury proceedings are supposed to be secret to protect innocent people's reputations. I think it is inappropriate to make any comment at this time about anything."

Paxton hired Kendall, a former federal judge, last week as special prosecutors said they would seek a first-degree felony indictment from the state grand jury. The attorney general's spokesman called the prosecution a "political hit job."

The cloud of a criminal investigation has shadowed Paxton while he has simultaneously emerged as a national Republican figure in barely six months on the job. Paxton recently advised county clerks they could refuse to issue marriage licenses to same-sex couples on religious grounds, despite the U.S. Supreme Court ruling legalizing gay marriage.

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Federal regulators said in court filings that they were investigating whether Servergy deceived investors by falsely claiming it was selling its data servers to big name companies such as online retailer Amazon and semi-conductor giant Freescale. The company raised more than $26 million selling shares in 2013, the SEC said.

SEC investigators had sought records from the company for more than a year when finally, in December 2014, the agency filed suit in federal court to force compliance with its demand for company documents.

Among records included in the public court file is an October 2014 letter to the SEC from Servergy's attorneys, outlining the search terms used to locate records the SEC sought. The letter singles out Paxton's last name, along with the last name of a broker who brought investors to Servergy and a Canadian tech company. It also lists Paxton's email address under "selected emails" of about 70 other contacts, at least four of whom are Paxton political donors.

One, Keresa Richardson, has donated more than $10,000 to Paxton campaigns since 2010. Although she's a Servergy investor and her email address was included in the court records, Richardson said she was unaware of the SEC investigation.

"If you're looking for dirt on Ken Paxton, he's the cleanest guy in the world. You can take a flying leap," Richardson told the AP.

Servergy ultimately complied with the SEC's records demand and, in March, federal investigators withdrew their lawsuit for the records. But the SEC's probe appears to be ongoing.

Asked about the status of the SEC investigation, a Servergy lawyer told the AP: "The company will continue to cooperate with the commission if we receive any additional requests." But attorney Tim Newman did not respond to questions about Paxton's role in the Servergy investigation.

The SEC's Servergy investigation was playing out as Paxton, who was a member of the Texas Legislature for a decade, campaigned for attorney general. A day after the SEC filed its lawsuit demanding records, Servergy founder William Mapp made a $250 campaign contribution to Paxton, the first time Mapp had ever donated to a Texas political candidate. Mapp did not respond to emails seeking comment.

Paxton has been a Servergy shareholder since 2011, according to state financial disclosure filings. Founded in 2009, Servergy sold data servers that the company said were smaller and used less energy than competitors.

Last year, Paxton accepted a $1,000 fine from the Texas State Securities Board for not being a registered solicitor while taking commissions for referring law clients to a financial investor. The board declined to pursue criminal charges against Paxton, but following a complaint by the left-leaning watchdog group Texans for Public Justice, the case was revived and a judge ultimately appointed two special prosecutors.

In May, the judge granted a request by the prosecutors to expand the scope of the investigation that's being handled by Texas Rangers.

Responding to claims by Paxton spokesman Anthony Holm that the investigation was politically motivated, special prosecutors Kent Schaffer and Brian Wice said in a statement last week that neither the state securities board nor two district attorney's offices had examined "the matters which we have been tasked with investigating through the same prism as we have, or with the benefit of the evidence being assembled by the Texas Rangers."