The federal court judge presiding over the civil Securities and Exchange Commission action against Texas Attorney General Ken Paxton has dismissed the case.
In a statement obtained by Breitbart Texas, Attorney General Paxton said, “I appreciate the judge’s thorough review and I am gratified by his dismissal of the entire case.”
Breitbart Texas reported on April 11 that the U.S. Securities and Exchange Commission (SEC) filed a civil lawsuit against Paxton and former executives of Servergy, Inc. Federal authorities filed the action just one week to the day before the Texas AG was to represent the Lone Star State and half the states in their fight at the U.S. Supreme Court against President Obama’s Administration’s executive amnesty order.
As reported by Breitbart News, the executive amnesty case was historic because this was only the second time in U.S. history where America’s highest court was to decide a challenge brought by a majority of states against the federal government. It was also historic in that it involved the scope of presidential power under the U.S. Constitution.
The motion to dismiss filed by lead counsel Matthew T. Martens (Washington, D.C.), Dallas lawyer William B. Mateja, and Frisco lawyer J. Mitchell Little, urged that the federal complaint for securities fraud “does not allege that [Paxton] made a single false or misleading statement.” The complaint did however, accuse Servergy’s co-founder and then-CEO and Chairman William E. Mapp, III, of leading investors to believe that a “revolutionary new server” “was in high demand.” It stated that Mapp falsely claimed that notable companies like Amazon.com and Freescale Semiconductors had pre-ordered the product. This was just one of the misrepresentations alleged by the SEC against Mapp in the complaint.
In June Breitbart Texas reported, that Paxton’s lawyers, including Martens who had previously served as the chief litigation counsel in the enforcement division at the SEC, filed a motion to dismiss the SEC civil lawsuit (with prejudice). He wrote, “In short, the SEC’s claims against Mr. Paxton are a dramatic overreach and lack any basis in law.”
Paxton’s lawyers filed the 29-page pleading and urged that the SEC had not claimed that Paxton ever lied or made a misrepresentation, and no one had alleged that they lost money in any of the transactions involving Paxton. The motion also stated that the SEC’s argument that Paxton failed to disclose that he could receive a commission for touting securities, and that he had not investigated the company, ran counter to decades of case law precedent that has never required such discussions or actions.
Federal regulators say Paxton raised $840,000 for Servergy, a high-tech startup, without telling investors that he was being paid. They alleged Paxton was paid 100,000 shares for bringing on investors in 2011.
In the Court’s order, the Judge Amos L. Mazzant, III (an Obama appointee) wrote, “This case is not about whether Paxton had a moral obligation to disclose his financial arrangement with Servergy to potential investors. This case is also not about whether Paxton had some general obligation to disclose his financial arrangement to his investor group. The only issue before the Court is to determine whether the facts as pleaded give rise to a plausible claim under federal securities laws. With that limitation in mind, the Court has determined that under the facts pleaded by the Commission, Paxton did not have a legal obligation to disclose his financial arrangement.”
The Court concluded “that the Complaint has not alleged facts sufficient to support a plausible claim under Sections 17(a) and 17(b) of the Securities Act or Sections 10(b) and 15(a) of the Exchange Act.”
The SEC asked the Court to give it an opportunity to amend its Complaint and the federal judge responded saying that “While this request does not satisfy the requirements of Federal Rule of Civil Procedure 15, the Court is inclined to allow the Commission to plead additional facts, if any, before it grants the motion and dismisses the Commission’s claims against Paxton.”
The Court ordered that Paxton’s Motion to Dismiss was conditionally granted “pending the Court’s review of the Commission’s submission of additional facts.” He granted the Commission “leave to amend its allegations against Paxton to the extent that it has additional facts that might support a claim under the statutes alleged in the Complaint.”
“This is a victory for Ken Paxton. Obviously, we are pleased with the Court’s ruling today,” said Matthew Martens.
Bill Mateja, a lawyer on both Paxton’s SEC and criminal defense teams added “now we turn our attention to Ken’s exoneration in the state matter where the prosecutor’s burden is even higher. The fraud allegations in the SEC case mirror those in the state case.”
Any amendment to the Complaint by the Commission was ordered to be filed within 14 days of the October 7th order.
The Judge also ordered that “the Commission must place any new facts not previously alleged in the original Complaint in bold typeface.”