Investing

SEC Charges Texas-Based Tech Company With Misleading Investors

Chris Lange

Published: April 12, 2016 11:45 am

Last Updated: January 13, 2020 10:52 am

The U.S. Securities and Exchange Commission (SEC) recently announced fraud charges against a Texas-based technology company and its founder accused of boosting stock sales with false claims about a supposedly revolutionary computer server and big-name customers purportedly placing orders to buy it.

At the same time, Texas Attorney General Ken Paxton and a former member of the company’s board of directors were charged with allegedly recruiting investors while hiding they were being compensated to promote the company’s stock.

According the report, the agency alleges that Servergy and William E. Mapp III sold $26 million worth of company stock in private offerings while misleading investors to believe that the Cleantech CTS-1000 server was especially energy-efficient. It was said that it could replace “power-hungry” servers found in top data centers and compete directly with top server makers like IBM, Dell and Hewlett-Packard.

However, neither Mapp nor Servergy informed investors that those companies were manufacturing high-performance servers with 64-bit processors while the CTS-1000 had a less powerful 32-bit processor that was being phased out of the industry and could not in reality compete against those companies.

The SEC further alleges that when Servergy was low on operating funds, Mapp enticed prospective investors by falsely claiming well-known companies were ordering the CTS-1000, and he specifically mentioned an order purportedly received from Amazon. However in reality, an Amazon employee had merely contacted Servergy because he wanted to test the product in his free time for personal use.

Since that time, Servergy has cut ties with Mapp, who served as chief executive officer. The company has agreed to pay a $200,000 penalty to settle the SEC’s charges. The litigation continues against Mapp in U.S. District Court for the Eastern District of Texas.

In the report, the SEC further detailed:

While serving in the Texas House of Representatives, Paxton allegedly reached an agreement with Mapp to promote Servergy to prospective investors in return for shares of Servergy stock. According to the SEC’s complaint, Paxton raised $840,000 in investor funds for Servergy and received 100,000 shares of stock in return, but never disclosed his commissions to prospective investors while recruiting them. Similarly, former Servergy director Caleb White allegedly raised more than $1.4 million for Servergy and received $66,000 and 20,000 shares of Servergy stock while never disclosing these commissions to investors. White has agreed to settle the SEC’s charges by paying $66,000 in disgorgement and returning his shares of Servergy stock to the company. The SEC’s litigation continues against Paxton.