Texas’ highest ranked lawman stands accused of breaking several laws. The Republican attorney general of Texas, Ken Paxton, faces two counts of first-degree securities fraud and one count of third-degree failure to register. The felony indictment, brought by investigative work from the Texas Rangers, is tied to Paxton’s work soliciting clients and investors for two companies at the same time that he was a member of the Texas House of Representatives. The alleged crimes occurred before Paxton was elected attorney general in November 2015.
A grand jury in McKinney, a north Dallas suburb in Collin County, handed up the three-count indictment against Paxton on August 3, 2015.
In the first-degree securities fraud charge, the most serious, Paxton is accused of misleading investors in a McKinney-based technology company, Servergy Inc. According to the New York Times, Paxton stands accused of “encouraging the investors in 2011 to put more than $600,000 into Servergy while failing to tell them he was making a commission on their investment, and misrepresenting himself as an investor in the company.” The investors group were Mr. Paxton’s friends (Paxton hails from McKinney) and included Representative Byron Cook, a colleague in the Texas House.
Kent Schaffer, one of two special prosecutors in the case, said Paxton’s role in misleading the investors first came to light in an investigation by members of the Texas Ranger Division. A judge appointed Schaffer and fellow special prosecutor, Brian Wice, two Houston defense lawyers, to act essentially as district attorneys in Paxon’s case.
First Degree Felony – Paxton’s Grand Irony
Conviction on a first-degree felony charge in Texas can carry a life in prison sentence or 5-99 years. A third-degree felony is punishable with a sentence of two to 10 years. For irony, Paxton helped create the possibility of such harsh punishment. As a freshman representative in the Texas House in May 2003, he voted to amend the state securities law to make it a felony to act as an investment adviser representative without being registered, the very crime the grand jury accuses him of committing.
Paxton violates Civil Rights Law
Paxton has also made headlines for challenging the Obama administration on its immigration and environmental policies and for encouraging county clerks to break new federal law and refuse (on religious grounds) to issue marriage licenses to gay and lesbian couples.
Representative Paxton solicited Business Funds
The case against Paxton kicked off in May 2014, when the Texas State Securities Board reprimanded the then Texas state rep. for failing to register as an investment adviser rep. The Times reports, “He had solicited three clients for a friend’s investment firm, Mowery Capital Management, in 2004, 2005 and 2012 and was paid part of the asset management fees. At the time, he was not registered with the securities board, violating a section of the Texas Securities Act prohibiting unregistered people from acting as investment adviser representatives, according to the board’s disciplinary order. Mr. Paxton signed and did not dispute the findings. He was fined $1,000 but faced no criminal prosecution.”
Texans for Public Justice
Consequently, Texans for Public Justice – a non-profit watchdog – filed a complaint against Mr. Paxton after he was reprimanded. Texans for Justice asked Travis County DA to prosecute him for felony criminal conduct. Prosecutors claimed insufficient evidence and said any potential criminal conduct had occurred outside Travis County. But they did forward the investigation to Collin County.
The Collin County DA recused himself for personal ties to Paxton. Then a state district judge in McKinney, Republican Scott J. Becker, appointed Schaffer and Wice as prosecutors. While the Texas Rangers investigated in May, the judge expanded the inquiry.
According to SEC court docs, Servergy has also been the subject of an SEC investigation centered on whether Servergy and its founder/CEO Bill Mapp (since resigned) made misleading statements about the company to induce investors to buy Servergy stock. Paxton’s name and email appeared in documents Servergy filed to comply with SEC subpoenas.
An SEC spokeswoman declined to comment to the Times on the status of the investigation or to say whether Paxton were any part of it.
A Servergy spokeswoman said the existence of an investigation did not mean wrongdoing had occurred. She declined to comment on Paxton’s indictment.