Grand Jury Indicts Texas Attorney General, Ken Paxton, on Felony Charges
Grand Jury Indicts Texas Attorney General, Ken Paxton, on Felony Charges
By MANNY FERNANDEZ AUG. 1, 2015
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Ken Paxton is the first Texas attorney general in more than 30 years to be indicted while in office. CreditEric Gay/Associated Press
HOUSTON — Ken Paxton, the Republican attorney general of Texas and a former longtime lawmaker, has been indicted by a grand jury on charges of securities fraud and of failing to register with the state securities board, felony charges that make him the first Texas attorney general in more than 30 years to be indicted while in office, officials said.
The grand jury in the northern Dallas suburb of McKinney handed up a three-count indictment against Mr. Paxton several days ago, officials said. The indictment is to be unsealed on Monday, when Mr. Paxton is expected to turn himself in to the authorities at the Collin County Jail. The charges — two counts of first-degree securities fraud and one count of third-degree failure to register — are tied to Mr. Paxton’s work soliciting clients and investors for two companies while he was a member of the Texas House of Representatives but before he was elected attorney general in November 2014.
In the most serious charges — first-degree securities fraud — Mr. Paxton is accused of misleading investors in a technology company, Servergy Inc., which is based in his hometown, McKinney. He is accused of encouraging the investors in 2011 to put more than $600,000 in Servergy while failing to tell them he was making a commission on their investment and misrepresenting himself as an investor in the company, said Kent A. Schaffer, one of the two special prosecutors handling the case. The group of investors had been Mr. Paxton’s friends and included a colleague in the Texas House, State Representative Byron Cook.
Mr. Schaffer said Mr. Paxton’s role in misleading the Servergy investors came to light in an investigation by the Texas Rangers. Mr. Schaffer and the other special prosecutor, Brian Wice, are Houston defense lawyers appointed by a judge to effectively act as district attorneys in the case.
“We went into this knowing that the Texas Rangers would uncover whatever evidence was there and if there was a sufficient amount that we would present it to a grand jury, so that’s what we did,” Mr. Schaffer said. “The grand jury elected to indict, and the indictments all speak for themselves.”
A conviction for a first-degree felony in Texas can carry a punishment of life in prison or a sentence of five to 99 years. A third-degree felony is punishable with a sentence of two to 10 years.
Mr. Paxton himself helped create the possibility of such severe 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.
A spokesman for Mr. Paxton, Anthony Holm, has been outspoken in defending the attorney general and in denying that Mr. Paxton has done anything wrong. He has characterized the case as a political witch hunt, suggested that an anti-Paxton blogger engaged in jury tampering and has questioned the special prosecutors’ eagerness for media coverage and impartiality as criminal defense lawyers.
“If society continues to overlook this witches’ brew of jury tampering, media leaks and freshman prosecutors, we may wake up to find the office of the Attorney General of Texas at the mercy of two criminal defense attorneys who take checks from the very drug cartel leaders and child molesters the attorney general tries to imprison,” Mr. Holm wrote in an op-ed article published last week in The Austin American-Statesman.
Mr. Schaffer said that politics played no part in the indictments.
“I have nothing personal against Mr. Paxton based on his politics,” Mr. Schaffer said. “Even if you found fault with Brian Wice or myself, how do you find it with the Texas Rangers?
These are the most honest, straightforward, incorruptible police officers you’re ever going to find. They don’t have political motivations, and they certainly wouldn’t have any against the sitting attorney general.”
As the state’s top lawyer and law enforcement officer, Mr. Paxton has made national headlines challenging the Obama administration on its federal immigration and environmental policies and for encouraging county clerks to refuse to issue marriage licenses to gay and lesbian couples on religious grounds after the Supreme Court’s ruling upholding same-sex marriage. Mr. Paxton, 52, was elected in November as part of a Republican sweep of the top seats in Texas government, and he has enjoyed widespread support among Tea Party activists, many of whom backed his unsuccessful bid in 2011 to oust a more moderate Republican leader, the speaker of the Texas House, Joe Straus III.
The case against Mr. Paxton began in May 2014, when he was reprimanded by the Texas State Securities Board for failing to register as a representative of an investment adviser. Mr. Paxton solicited three clients for his friend’s investment firm, Mowery Capital Management, in 2004, 2005 and 2012 and in return was paid a portion of the asset management fees. At the time, Mr. Paxton had not registered with the securities board, violating a section of the Texas Securities Act that prohibits people from acting as an investment adviser representative unless they are registered with the state, according to the board’s disciplinary order, the findings of which Mr. Paxton signed and did not dispute. Mr. Paxton was fined $1,000 but he faced no criminal prosecution.
A nonprofit government watchdog group, Texans for Public Justice, filed a complaint against Mr. Paxton after he was reprimanded, asking the district attorney in Travis County, which includes Austin, to prosecute him for felony criminal conduct. Prosecutors said that there was insufficient evidence to support a prosecution in Travis County and that any potential criminal conduct occurred outside the county. They forwarded the investigation to the authorities in Collin County.
The Collin County district attorney recused himself from the case because of his ties to Mr. Paxton and a state district judge in McKinney, Scott J. Becker, a Republican, appointed Mr. Schaffer and Mr. Wice to act as prosecutors. In May, as the Texas Rangers investigated the claims, the judge expanded the inquiry to include any offenses “arising out of Ken Paxton’s alleged violations of the Texas Securities Act.”
The grand jury in Collin County, which began hearing evidence in early July, determined that Mr. Paxton’s failure to register with the state for his work for Mowery Capital Management amounted to a crime, and charged him with the one felony count of failure to register. Mr. Paxton had also failed to register with the securities board during his work in 2011 for Servergy, but Mr. Schaffer said they decided not to seek a failure-to-register felony charge from the grand jury in that instance because the statute of limitations had run out.
The last Texas attorney general to be indicted while in office was Jim Mattox, who was indicted by a Travis County grand jury in 1983 on a felony charge of commercial bribery. He was accused of threatening to destroy the bond business of a Houston law firm if the firm pursued inquiries into his campaign finances, but he was acquitted of the charge two years later.
Mr. Mattox’s successor as attorney general, Dan Morales, was indicted on federal charges in 2003 after he left office. Mr. Morales and a friend were accused of trying to fraudulently obtain hundreds of millions of dollars in legal fees for the friend from the state’s $17 billion settlement with the tobacco industry while Mr. Morales was attorney general. Mr. Morales pleaded guilty to mail fraud and tax evasion, and was sentenced to four years in federal prison.
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