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SEC Charges Servergy, Inc. with Fraud Relating to Fundraising Efforts for Energy Efficient Technology

On April 11, 2016, the Securities and Exchange Commission (“SEC”) filed a Complaint (the “Complaint”) against Servergy, Inc. (“Servergy”), a technology company incorporated in Nevada but headquartered in Texas, William E. Mapp, III (“Mapp”) – its founder, Caleb J. White (“White”) – a former member of Servergy’s board of directors, and Texas Attorney General Warren K. Paxton, Jr. (“Paxton”), in connection with generating stock sales through misleading statements about allegedly revolutionary computer technology and a flurry of orders for the technology by well known businesses.

The Complaint alleges the following causes of action: fraud in the offer or sale of securities in violation of Section 17(a) of the Securities Act; fraud in connection with the purchase or sale of securities in violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; offers and sales of unregistered securities in violation of Section 5(a) and (c) of the Securities Act (as against Mapp, White and Servergy); anti-touting in violation of Section 17(b) of the Securities Act (as against White and Paxton); and offers and sales of securities by an unregistered broker in violation of Section 15(a)(1) of the Exchange Act (as against White and Paxton).

The Complaint alleges that between November 2009 and September 2013, Servergy “raised approximately $26 million in private security offerings to develop what it claimed was a revolutionary new server, the Cleantech-1000.”   Servergy did so without filing any registration statements or relying on any such statements already in effect, and furthermore did not fall under any registration exemption.  The Complaint further alleges that Servergy and its then-CEO, Mapp, “led investors to believe that the [Cleantech-1000] was in high demand by falsely claiming notable companies like and Freescale Semiconductors had pre-ordered the product.”  However, the technology underlying the Cleantech-1000 was rather old and being phased out of the industry.

According to the Complaint, from November 2009 through January 2013, Mapp raised more than $6 million from the sale of common stock to more than 135 investors.  Mapp further offered a 10% commission as a referral fee to those who were able to lure more investors.  The Complaint alleges that once investors were involved, Mapp would provide them with misleading presentations and documents, touting that the Cleantech-1000 “would directly compete with top server makers like IBM, Dell, and Hewlett Packard.  However, neither Mapp nor Servergy informed investors that while those companies had moved to manufacturing high performance servers with 64-bit processors, the [Cleantech-1000] had a less powerful 32-bit processor.”

Further, Servergy paid White and Paxton commissions to lure potential investors, who were unaware of the financial arrangement.  White, who owns an insurance sales firm, received approximately $66,000 in commissions.  Paxton, Texas’ current Attorney General, and who served as both a Texas state representative and as a Texas Senator during the period in question, received 100,000 shares of Servergy for his role in recruiting investors.

The attorneys at Lax & Neville LLP have extensive experience in successfully prosecuting claims on behalf of customers who have suffered losses or been defrauded. If you are a victim of fraud, please contact Lax & Neville LLP today at (212) 696-1999 to schedule a consultation.

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