The U.S. Securities and Exchange Commission filed a civil complaint against Texas Attorney General Ken Paxton Monday morning. He’s accused of misleading investors to raise $840,000 in exchange for 100,000 shares of Servergy Inc. stock.
“No, it does not look good. I would not want to be defending Paxton in the federal case,” said attorney Buck Wood.
According to the complaint, “Paxton knowingly or recklessly failed to disclose the commission to investors despite an obligation to do so.”
The complaint alleges Paxton convinced even “pressured” investors pour hundreds of thousand on dollars into the tech company in North Texas.
“I’ve seen a lot of security scams during my practice and this is about as blatant as it gets,” Wood said. “They were just lying to the investors.”
If Paxton is found guilty in the federal case, he will have to repay the $840,000 to five investors.
Wood said, “I’ve seen no evidence that he has that kind of money.”
Paxton is one of three people named in the civil suit, along with Servergy, Inc. Overall, the complaint states the company raised $26 million over the course of four years.
The case dates back to before Paxton took office at the state’s Attorney General in January of 2014.
“You would not normally want your state’s chief lawyer being guilty of fraud,” Wood said.
There are statutes that criminalize the behavior alleged in the federal complaint. Wood said the SEC typically files civil complaints ahead of criminal charges.
“That’s purely up to the U.S. Attorney,” Wood said, “Sometimes they bring criminal charges and sometimes they don’t.”
Paxton was already under indictment at the state level. He pleaded not guilty to criminal charges in state district court. The state’s AG plans to fight the new federal charges while he appeals the criminal indictments in Collin County District Court.
In a written statement, Paxton’s attorney Bill Mateja said, “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. ”
No matter what the legal outcome, it is possible for the Texas State Bar to take action and file an independent grievance against Paxton which could be the end of his career at AG.
The state’s constitution doesn’t say the Attorney General has to be a lawyer but Wood thinks it would be interpreted that way.
Wood said, “He would really have no ability to bring lawsuits, he wouldn’t be able to participate in lawsuits if he was disbarred, so I think effectively it would remove him from office.”
