Texas AG Paxton Faces New SEC Fraud Suit

October 25, 2016
By David Lee
DALLAS (CN) — Undeterred by a federal judge’s dismissal two weeks ago, the SEC on Friday filed an amended securities fraud complaint with four charges against Texas Attorney General Ken Paxton.
The SEC sued Paxton in April, claiming he did not tell prospective investors in McKinney-based Servergy Inc. that he was paid commissions to promote the computer server company. That lawsuit, like the first amended complaint filed Friday, also named Servergy, its former CEO William E. Mapp III, and “purported independent director” Caleb J. White as defendants.
In dismissing that complaint on Oct. 7, U.S. District Judge Amos Mazzant ruled that Paxton “did not have a legal obligation to disclose his financial arrangements” and found no plausible claim under federal securities laws.
The SEC claims Paxton raised more than $480,000 for the company and was given 100,000 shares of stock while he was a member of the Texas House of Representatives.
“Paxton characterized this payment at various times as an investment for which he paid $100,000, as compensation for legal services, and as a gift in order to disguise or conceal its true nature from the investors that he recruited, from federal regulators, and from the public,” the 40-page amended complaint states. “In reality, Paxton’s undisclosed arrangement with Servergy violated the explicit expectations of some investors and a duty he owed to others he solicited.”
The SEC says Paxton “did nothing” to determine whether Servergy founder Mapp’s claims to a worried investor that the company had more purchase orders were true. It disputed Paxton’s claims that his statements were “mere puffery” and did not trigger a duty to disclose.
Paxton’s attorney, Matthew Martens with Wilmer Hale in Washington, D.C., said he would “respond accordingly” after evaluating the amended complaint.
“We are disappointed by the SEC’s decision to continue this case, given the court’s opinion and the clear infirmities the court found with the commission’s original complaint,” Martens said Friday.
The securities fraud allegations against Paxton came to the public’s attention when a Collin County grand jury indicted him in August 2015 on two first-degree felony counts of securities fraud and a third-degree felony count of failing to register with the Texas State Securities Board.
The allegations in the state criminal case closely mirror those in the SEC’s federal civil case. If convicted of the criminal charges, Paxton faces up to 99 years in state prison.
The Texas Court of Criminal Appeals on Oct. 12 rejected Paxton’s last-ditch appeal to avoid trial, denying his petition for discretionary review of a trial judge’s refusal to dismiss in December. The Texas Court of Criminal Appeals is the state’s highest court of criminal appeals.
The state’s en banc Fifth Court of Appeals in Dallas rejected Paxton’s first appeal in June.
The SEC’s first amended complaint contains five charges: two counts of securities fraud against all four defendants; a third count of securities fraud against Mapp, White and Servergy; an anti-touting count against White and Paxton; and operating as an unregistered broker against White and Paxton.

From Courthouse News.

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Ebola Nurse Settles Case Against Texas Hospital

October 24, 2016
By David Lee
DALLAS (CN) – A Dallas nurse who contracted Ebola from the first domestic case of the virus settled her lawsuit against her employer before trial on Monday.
In a joint statement, Nina Pham and Texas Health Resources told Courthouse News they “have resolved the pending lawsuit, and wish the best for each other going forward.”
Terms of the settlement were not disclosed.
“All parties have agreed the terms of the resolution are confidential and will not make additional statements or grant media interviews,” the parties said.
Pham sued Texas Health Resources in March 2015 in county court for negligence, misrepresentation, breach of privacy and misrepresentation. She said she was not properly trained or given proper protective equipment when she cared for Thomas Eric Duncan, of Liberia, at Texas Health Presbyterian Hospital Dallas in October 2014.
She tested positive for Ebola three days after Duncan died from the disease.
Duncan’s case set off a month-long public health crisis in North Texas that involved the monitoring of over 100 possible contacts, sterilization of several locations and school closures. A second nurse, Amber Vinson, also tested positive for the disease.
Vinson was transported to Emory University Hospital in Atlanta and Pham to the National Institutes of Health in Bethesda, where they both recovered and were issued clean bills of health.
Pham claimed that she was used a “PR pawn,” that a widely shared video of her in a hospital bed at Presbyterian was released without her permission. She said the hospital ignored her request to release no information about her when she became ill.
Pham has publicly stated her anxiety over the long-term effects of Ebola and the experimental treatments she took, noting her hair has been falling out and she’s not sure she can have children.
Texas Health Resources had denied Pham’s claims, arguing they are subject to workers’ compensation laws because the Ebola exposure happened at work. The trial court had issued an injunction preventing the hospital and Texas Health Resources from adjudicating whether they are co-employers in the case, but the Fifth Court of Appeals in Dallas reversed the injunction in August.
Pham’s case was scheduled to go to trial on Oct. 18, but was delayed for several days because an earlier trial in the same court ran longer than scheduled.

From Courthouse News.

Feds Investigate Baylor on Sexual Assaults

October 20, 2016
By David Lee
WACO, Texas (CN) — Baylor University confirmed Wednesday that it is under investigation by the U.S. Department of Education for its handling of sexual assaults on campus, after its Title IX coordinator quit, saying she was set up “to fail from the beginning.”
Baylor said the Department of Education’s Office for Civil Rights notified it that it would investigate a complaint filed by former Title IX coordinator Patty Crawford.
Appearing with her attorney on CBS “This Morning” on Oct. 5, Crawford said she resigned due to her disappointment in her “role in implementing the recommendations that resulted” from a damning review by the Pepper Hamilton law firm of how the school bungled sexual assault complaints by students, particularly those against football players.
“In its notification letter, OCR indicates the opening of an investigation in no way implies that a determination regarding the merits of the claim has been made,” Baylor said in its statement Wednesday. “We embrace and support OCR’s goal to maintain a campus free from sex and gender-based harassment and violence.”
Ordered by the school’s board of regents in August 2015 as the rape allegations and lawsuits mounted, Pepper Hamilton’s review concluded that administrators “directly discouraged” some women from reporting sexual assault and in one case retaliated against a woman for reporting.
The board reacted quickly when the review’s results were announced in May, demoting school President Ken Starr, sanctioning athletic director Ian McCaw and firing popular head football coach Art Briles.
McCaw resigned within days and Starr later quit his remaining positions as chancellorand a member of the law school faculty.
Members of the board apologized to the alleged rape victims and promised to implement Pepper Hamilton’s recommendations, but Crawford said she believes Baylor did nothing to investigate her concerns about how sexual assault investigations were handled.
“The harder I worked, the more resistance I got,” she told CBS. “I was being retaliated against for fighting discrimination.”
Baylor is facing several Title IX lawsuits from students who say administrators failed to respond appropriately to their rape claims. It is trying to settle a federal lawsuit filed in April by former student Jasmin Hernandez, who says school counselors told her they were “too busy” to see her after she was raped by former football player Tevin Elliott.
Elliott was sentenced in January 2014 to 20 years in state prison on each of two counts of sexual assault.
Hernandez said her mother called coach Briles to tell him what Elliott had done and then received a phone call from his secretary saying they would look into it.
“Hernandez’s father also called Briles’ office several times to follow up,” Hernandez said in her lawsuit. “Hernandez’s father never received a return phone call from Briles or anyone in his office.”
The board of regents confirmed in May that football coaches and staff members “met directly with a complainant and/or a parent of a complainant and did not report the misconduct,” resulting in no action being taken.
Hernandez’s lawsuit came three months after Baylor settled similar claims from a student who said she was sexually assaulted by former football player Sam Ukwuachu. No lawsuit was filed in that case.
Ukwuachu was sentenced in 2015 to 180 days in county jail, 10 years of probation and 400 hours of community service.
Briles was heavily criticized for recruiting him as a transfer from Boise State University, where he had faced allegations of violence against women.

From Courthouse News.

GOP-Tied Group Presses Attack on the IRS

October 17, 2016
By David Lee
DALLAS (CN) – A Republican-affiliated group that says the Internal Revenue Service illegally targets conservative groups seeks partial summary judgment on its claim that the IRS uses an unconstitutional test to determine tax-exempt nonprofit status.
Dallas-based Freedom Path sued the IRS and Lois G. Lerner, the former director of the agency’s Exempt Organizations Division, in April 2014 in Federal Court. It claimed that as early as February 2010, the agency targeted tax-exempt applications from groups with names including the words “Tea Party” and “Patriots,” asking for unnecessary information such as donor names.
Last Wednesday, Freedom Path asked the court to grant partial summary judgment because the IRS’ “facts and circumstances” test is too vague and violates the Fifth Amendment.
“Pursuant to Revenue Ruling 2004-6, the determination of whether a communication constitutes issue advocacy versus an exempt-function activity (i.e., political campaign intervention) is based upon a highly subjective evaluation of all the facts and circumstance on each case, instead of by reference to any clearly defined bright-line rules,” the 29-page memorandum in support of the motion states.
Freedom Path says it has “no way of knowing” what speech is protected and what speech would harm its tax-exempt nonprofit status.
“Revenue Ruling 2004-06 essentially establishes the IRS’ position with respect to campaign intervention activity as ‘we know it when we see it,'” the memo states. “And social welfare organizations must guess how much of each kind of activity is allowed and whether they should track their activities based on the dollars spent, time spent, or other measures. Again, even the IRS has publicly acknowledged that the ‘facts and circumstances’ test is ambiguous and confusing.”
Freedom Path says the IRS’ use of subjective intent suggests vagueness, citing a Seventh Circuit ruling that concluded the test “is no standard at all, and makes the tax status of organizations and their donors a matter of the whim” of the agency.
The group calls the test an impermissible burden on free speech “because it sweeps into ‘exempt-function activity’ speech that is clearly issue advocacy, and it is a tool of viewpoint discrimination the IRS has been deploying against speakers for years.”
Lerner was dismissed from the lawsuit in February 2015.
The Justice Department declined to charge her with criminal wrongdoing eight months later.
IRS Commissioner John Koskinen refused to step down in September as he defended himself from Republicans’ impeachment attempts.
He insisted he had not purposefully misled Congress in its investigation of the alleged political targeting.

From Courthouse News.

Case Ends of Teen Killed for an IPhone

October 17, 2016
By David Lee
DALLAS (CN) – Though she will never get the money, a Dallas County judge awarded $50 million to the mother of a teenager who was dragged to death by a train after four teenagers beat him up and tried to steal his iPhone.
State District Judge Martin Hoffman on Sept. 19 granted Takeysha Keys’ motion for default judgment against Verendez Gage, Cortney Woods, Daymion Savannah and Royneco Harris. She sued the four attackers and train operator Dallas Area Rapid Transit in 2013 for wrongful death and negligence.
The individual defendants were 12 to 15 years old when they attacked Octavius Lanier on Nov. 22, 2011 as he rode a light rail train to the Martin Luther King DART station in east Dallas.
Keys said the train conductor sped away from the station rather than call for help or stop the beating as her son became pinned between the train and platform.
“As the DART train left the station, Octavius’ leg became caught between the train and the station platform,” the complaint stated. “The DART train conductor failed to assure conditions were safe before driving the train from the MLK station. Octavius was dragged over 30 feet by the train, severing his femoral artery,” killing him.
Keys said the transit authority knew that violent crimes were increasing on its network that year.
Keys settled her claims against DART on Aug. 12. Terms of the settlement were not disclosed. Her judgment against the four attackers is largely symbolic, as they are all incarcerated and unlikely to ever satisfy the judgment.
The attackers “acted in concert with one another to engage in murder/and or aggravated assault” that approximately caused Keys’ damages, Hoffman wrote in his final judgment.
In her August motion for default judgment, Keys asked for $5 million for mental anguish, $10 million for future mental anguish, $5 million for loss of companionship, $10 million for future loss of companionship and $20 million in punitive damages.
Judge Hoffman approved each amount.

From Courthouse News.

Judge Wants More Info on Politics & Climate

October 17, 2016
By David Lee
DALLAS (CN) — A Texas federal judge wants Massachusetts Attorney General Maura Healey to show she had no political bias when she subpoenaed ExxonMobil for four decades of records of its knowledge about climate change before he rules on ExxonMobil’s lawsuit against her.
Irving-based ExxonMobil sued Healey, a Democrat, in June. Healey issued civil investigative demands in March after appearing with other attorneys general and spoke of an investigation of whether ExxonMobil broke the law by misrepresenting its knowledge of climate change in marketing materials and investor communications.
ExxonMobil called the allegations are “a weak pretext for an unlawful exercise of government power to further political objectives,” and said the applicable statute in the investigation has a statute of limitations of four years.
On Thursday, in response to Healey’s motion to dismiss and ExxonMobil’s motion for an injunction, U.S. District Judge Ed Kinkeade wrote that Healey’s comments before issuing the demands are “concerning” and “may constitute bad faith,” by using subpoenas that would preclude U.S. Supreme Court precedent that federal courts abstain from interfering with state judicial proceedings.
“Attorney General Healey’s comments and actions before she issued the CID require the Court to request further information so that it can make a more thoughtful determination about whether this lawsuit should be dismissed for lack of jurisdiction,” Kinkeade wrote in the 6-page order.
“Accordingly, the court orders that jurisdictional discovery by both parties be permitted to aid the court in deciding whether this law suit should be dismissed on jurisdictional grounds.”
In June, ExxonMobil defeated a similar subpoena from U.S. Virgin Islands Attorney General Claude Earl Walker.
Walker agreed to drop his subpoena for climate change records after the company sued him, the Cohen Milstein Sellers & Toll law firm, and attorney Linda Singer in Tarrant County Court in April.
ExxonMobil said it broke no Virgin Island laws because it has no physical presence in the territory, and “owns no property, has no employees, and has conducted no business operations” in the Virgin Islands in the past five years.
In September, Texas and 10 other states filed an amicus brief on ExxonMobil’s behalf in its federal lawsuit against Healey.
Texas Attorney General Ken Paxton called Massachusetts’ subpoena an “unconstitutional use of investigative powers,” stemming from a “coalition of liberal” attorneys general who said in March that they would “go after one side of the policy debate” on climate change.
Paxton, a Republican, said state attorneys general have sovereign authority to investigate violations of law through subpoenas, but that “this power does not include the right to engage in unrestrained, investigative excursions to promulgate a social ideology, or chill the expression of points of view, in international policy debates.”
ExxonMobil filed a similar lawsuit demanding an end to Healey’s investigation in Suffolk County Superior Court in Massachusetts in June.
Healey’s spokeswoman Cyndi Roy Gonzalez responded: “The First Amendment does not protect false and misleading statements in the marketplace.”
Gonzalez added in June: “For many months, Exxon Mobil has engaged in an unprecedented effort to limit the ability of state attorneys general to investigate fraud and unfair business practices and to protect Massachusetts consumers, investors and the public. Our investigation is based, not on speculation, but on inconsistencies about climate change in Exxon documents which have been made public.”

From Courthouse News.

Texas Attorney General Must Face Criminal Trial

October 13, 2016
By David Lee
DALLAS (CN) — Texas’ highest criminal appeals court on Wednesday refused to hear Attorney General Ken Paxton’s appeal of securities fraud charges, paving the way for trial that could send him to state prison for 99 years.
The Texas Court of Criminal Appeals denied Paxton’s petition for discretionary review of a trial judge’s refusal in December to dismiss two first-degree felony counts of securities fraud and a third-degree felony count of failing to register with the Texas State Securities Board. The en banc Fifth District Texas Court of Appeals in Dallas rejectedPaxton’s first appeal in June.
Paxton was charged by a Collin County grand jury in August 2015 with failing to tell investors in McKinney-based technology firm Servergy that he would earn commissions, and lying to them that he was investing in the company.
“Today’s ruling marks an end to Mr. Paxton’s almost year-long attempt to avoid being judged by a jury of his peers,” special prosecutor Brian Wice said in a statement. “We look forward to going to trial and seeking justice on behalf of the people of Texas.”
Paxton’s attorney, William Mateja with Polsinelli in Dallas, said he will file a motion for rehearing due to their “tremendous confidence” in their case.
Mateja cited a federal judge’s dismissal last week of a civil securities fraud suit brought against Paxton by the Securities and Exchange Commission that made similar allegations. “The charges against Ken Paxton are without merit,” Mateja said in a statement. “A federal court, following a lower legal standard, ruled that the fraud charges were baseless.”
In his 59-page appeal to the state’s highest criminal court in August, Paxton said the failure to register charge should be tossed because controlling state law is “vague” and invalid, and that there is no federal definition of what an investment adviser representative is.
He also argued that the two securities fraud charges should be tossed because the grand jury should have been voided when the presiding judge asked for “volunteers” who were “willing to serve” on the grand jury.

From Courthouse NewsCourthouse News.