© 2015 The Texas Lawbook.
By James Osborne of The Dallas Morning News
(Aug. 10) – In late 2012, Steven Noonan stumbled onto the website of a company named Servergy.
A computer hobbyist in Seattle whose day job was designing software for online retailer Amazon, he was intrigued by the description of an ultra-efficient computer server. He emailed the company to inquire about specs.
A Servergy vice president wrote back, asking about Amazon’s data centers and whether they could set up a call. Noonan warned he wasn’t inquiring on behalf of Amazon — he just liked messing around with electronics.
But the company persisted, offering to send him a server to test free of charge, and Noonan accepted, he told The Dallas Morning News.
Eighteen months later, Noonan was contacted by an investigator with the U.S. Securities and Exchange Commission: What did he know about Servergy?
A small technology firm in McKinney with 22 employees, Servergy came into public view last week when a Collin County grand jury announced the indictment of Texas Attorney General Ken Paxton related to a deal he had made to sell the company’s stock.
In 2011, Paxton allegedly advised a Florida businessman and Texas state Rep. Byron Cook to invest in the firm without telling them he was being paid to do so, a violation of state securities law. Paxton has said through his lawyer that he would plead not guilty to the three securities-related counts.
Over the past six years, Servergy has raised $26 million from investors to develop what it promoted as a cutting-edge computer server.
Behind the scenes, the company is under investigation by the SEC on suspicion of misleading investors through lofty claims about both its technology and deals with the likes of Amazon and Austin company Freescale Semiconductor that never materialized.
According to court filings by the SEC, those claims were not based on actual agreements but on some small kernel of truth hyped by the company’s founder and former chairman, William Mapp III.
In early 2013, Mapp emailed investors touting a deal with Amazon. He emailed one investment adviser: “Many BIG exciting updates, including: We just got our first big order from Amazon …”
But the SEC said after reviewing correspondence supplied by Servergy that it found no evidence of any such order. Rather, it pointed to correspondence with Noonan in late 2012 as the basis of the claims, according to court documents filed by the SEC last year.
Mapp, who describes himself on his LinkedIn page as a “30M+ Social Entrepreneur, Success Coach, Speaker” who worked for the likes of IBM and Texas Instruments, was also looking for new investors.
A Servergy spokeswoman said Mapp hired Paxton as an adviser, a relationship that ended by late 2012. She said she could not offer further detail.
In July 2011, Paxton, then a state representative from McKinney, persuaded Cook, a Republican from Corsicana, and South Florida businessman Joel Hochberg each to buy more than $100,000 in Servergy stock, according to the Collin County indictment.
Paxton didn’t tell them that in exchange for soliciting his business and political contacts, Servergy had given him 100,000 shares. In the stock offering in 2013, Servergy would sell its shares for $2 each.
Paxton, who was elected attorney general in 2014 on a swell of tea party support, was known to invest in emerging companies.
In 2008, he was one of four state lawmakers to invest in a company developing software for traders on the energy market. When the deal collapsed, they and more than 20 other North Texas investors lost $2.5 million, according to court records.
For a longer version of this article, please visit The Dallas Morning News online @ www.dallasnews.com/business/technology/headlines.
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