Texas AG Paxton Asks|Judge to Toss Federal Case

     DALLAS (CN) — Texas Attorney General Ken Paxton on Thursday asked a federal judge to dismiss a securities fraud lawsuit against him related to felony charges he is facing in state court.
     The SEC sued Paxton, Servergy Inc., its co-founder William E. Mapp and former director Caleb J. White in Sherman Federal Court in April.
     The lawsuit claims that Paxton — a Republican member of the Texas House of Representatives at the time — did not confirm Servergy’s claims about its server technology and did not disclose to investors he was being compensated. The SEC said Paxton raised more than $480,000 from investors and was given 100,000 shares of Servergy stock.
     In his June 9 motion to dismiss, Paxton says the SEC’s two fraud claims against him are “unsupported and legally insufficient” and should be dismissed because they are “woefully short on the level or particularity” to allege fraud.
     “The complaint fails to identify a single false or misleading statement made by Mr. Paxton,” the 38-page motion states. “While the complaint alleges that Mr. Paxton ‘recruited’ his ‘friends, business associates, law firm clients, and members of an investment group to which he belonged’ to invest in Servergy, it does not specify when, where, or how he recruited them, nor does it explain how such ‘recruitment’ was fraudulent.”
     Paxton cites the SEC’s claim that he called an investor late at night on July 22, 2011, to persuade him to change his mind about investing in Servergy by telling him it would be a “great investment” that would double in value.
     “For the first time, the complaint alleges an actual statement — ‘great investment’ — made by Mr. Paxton in connection with a ‘when,’ ‘where,’ ‘how,’ and ‘to whom,'” the motion states. “But calling something a ‘great investment’ is mere puffery. Puffery is not actionable in a securities fraud action, as such statements are deemed immaterial as a matter of law.”
     Paxton is represented in the SEC case by Matthew Martens and Jaclyn Moyer with Wilmer Cutler Pickering Hale in Washington, D.C.
     Paxton said his attorneys “will allow me to focus on my duties as Texas Attorney General” and the interests of those he serves.
     “I did not violate the federal securities laws, and I intend to defend myself vigorously against these allegations,” he said in a statement Thursday afternoon.
     Paxton’s legal problems began when the Texas State Securities Board fined him $1,000 in 2014 after he admitted he had solicited clients for a friend’s investment firm, Mowery Capital Management, without being registered as an investment adviser, and while he was a state senator. Paxton paid the fine and was reprimanded.
     The case led to a Texas Rangers investigation that resulted in three felony securities fraud indictments in Collin County in August 2015.
     Prosecutors claim Paxton urged investors in 2011 to invest in Servergy without telling them he would earn a commission on it, and misrepresented that he was investing in it himself.
     The trial judge refused to toss the indictments in December. A Dallas appeals court rejected Paxton’s appeal last week, paving the way for trial.
     Paxton has blamed his legal troubles on political opponents and President Barack Obama.

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