Like DOJ, the SEC Has Trouble with Misleading Press Releases

unfair to fair on white paperI’ve written before about the fundamental unfairness of the Department of Justice’s practice of issuing press releases touting indictments but not issuing press releases when the charges are dismissed or the defendant acquitted.

It looks like the SEC has the same problem.

On April 11, 2016, the SEC announced a complaint it filed against the Texas Attorney General Ken Paxton, among others. I wrote about the basics of the civil and criminal cases against Mr. Paxton a few months ago.

The SEC’s press release opened, in big bold letters:

SEC: Company Misled Investors About Energy-Efficient Technology

It went to explain:

The Securities and Exchange Commission today 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.

Also charged in the SEC’s complaint is Texas Attorney General Ken Paxton and a former member of the company’s board of directors for allegedly recruiting investors while hiding they were being compensated to promote the company’s stock.

***

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.

Pretty salacious stuff against a sitting state attorney general. The press release also includes a link to the PDF complaint in the case.

That press release is still proudly sitting on the SEC’s website.

But here’s the thing. On October 7, 2016, that complaint was dismissed.

The SEC didn’t issue a press release about that. Ok, I get it. The SEC was permitted to file an amended complaint and was no doubt certain it would survive a motion to dismiss.

But it didn’t. On March 2, 2017, that complaint was dismissed as well. The district court concluded that the amended complaint didn’t fix the problems in the initial complaint:

This case has not changed since the Court conditionally dismissed the Commission’s Original Complaint. The primary deficiency was, and remains, that Paxton had no plausible legal duty to disclose his compensation arrangement with investors. The question before the Court is not whether Paxton should have disclosed his compensation arrangement but whether Paxton had a legal duty under federal securities law to disclose. As alleged, Paxton’s conduct simply does not give rise to liability under the federal securities laws as they exist today. And it is not the province of the Court to stretch federal securities laws beyond their scope to prescribe liability based on moral considerations or policy concerns. 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 in the Amended Complaint, Paxton did not have a legal obligation to disclose his financial arrangement.

Funny thing, though. The SEC’s website doesn’t mention either of those dismissals.

Nothing, nada, zilch, zip.

If you search “Ken Paxton” and “SEC,” the first hit is the SEC’s press release about the complaint. (Lucky for Mr. Paxton, the first-page results from a search of just his name includes links to his official website, his Wikipedia page and news stories about his win against the SEC.)

I’m not asking for perfection here, just a little fairness. If a complaint is dismissed or the SEC loses at trial, it should add a correction at the top of the original press release making clear that the SEC lost the case (and link to the court decision), and it should issue a new press release explaining that it lost the case.

This isn’t a suggestion that is intended to embarrass the SEC. It’s a suggestion to give defendants a fair shake in their online reputation, and it’s a suggestion that our government fairly inform the public about its wins and its losses. If you  only read the SEC’s press releases, you’d think its win rate is 100%.

Thanks to courageous defendants who fight (rather than settle) and strong defense counsel, it’s not. That shouldn’t be a secret.

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