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SEC files charges against Texas attorney general in alleged tech stock fraud

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SEC files charges against Texas attorney general in alleged tech stock fraud

The SEC on April 11 announced fraud charges against Texas AttorneyGeneral Ken Paxton for allegedly reaching an agreement with William Mapp III, founderof Texas-based Servergy Inc., to promote Servergy to investors in return for sharesof Servergy's stock.

The SEC alleges that Paxton reached an agreement with Mapp whileserving in the Texas House of Representatives and recruited investors while hidingthat he was being compensated to promote the company's stock. According to the complaint,Paxton raised $840,000 in investor funds for Servergy and received 100,000 sharesof stock in return, but never disclosed his commissions to investors while recruitingthem. The SEC's litigation continues against Paxton.

Servergy and Mapp were also charged in the complaint, which allegesthat $26 million worth of Servergy stock was sold in private offerings while misleadinginvestors to believe that the Cleantech CTS-1000 server, the sole product of thecompany, was especially energy-efficient and could replace power-hungry serversfound in top data centers, competing directly with top server makers such as IBM,Dell and Hewlett Packard. The SEC said investors were not informed that those companieswere manufacturing high-performance servers with 64-bit processors while the CTS-1000had a less powerful 32-bit processor that was being phased out of the industry andcould not compete against those companies. The SEC further alleges that when Servergywas low on operating funds, Mapp enticed investors by falsely claiming that well-knowncompanies were ordering the CTS-1000.

Without admitting or denying the charges, the company agreedto pay a $200,000 penalty to settle charges. The litigation continues against Mappin U.S. District Court for the Eastern District of Texas.

Caleb White, a former board member of Servergy, allegedly raisedmore than $1.4 million for Servergy and received $66,000 and 20,000 shares of thecompany's stock while never disclosing the commissions to investors. White agreedto settle the SEC's charges by paying $66,000 in disgorgement and returning hisshares to the company, without admitting or denying the charges.