We continue to learn more about just how compromised our Attorney General is.
Ken Paxton earned thousands of dollars by referring his private legal clients to a financial adviser now accused of “unethical and fraudulent conduct” by the state, records obtained by The Dallas Morning News show.
Paxton, now Texas attorney general, did not tell them he was getting paid. He steered his clients to a financial adviser who had declared bankruptcy and who now faces losing his state license over questionable business dealings.
Paxton’s referral agreement with Frederick “Fritz” Mowery, the head of McKinney-based Mowery Capital Management, has created a yearlong political and legal headache for the Republican attorney general. He acknowledged last year, in the middle of his statewide campaign, that he violated state securities law by failing to register as an agent for Mowery. He paid a $1,000 administrative fine in April 2014.
Failing to register can also be a third-degree felony under state law. Complaints by a watchdog group have led to a Texas Rangers investigation and appointment of special prosecutors.
A Paxton aide said Paxton was unaware of Mowery’s financial trouble and business conduct. Mowery, reached by The News, deferred to his lawyer, who declined to comment. In court proceedings, the attorney has acknowledged his client’s mistakes with paperwork and other matters but said he did not defraud his clients.
Paxton referred at least six of his law clients — twice as many as previously reported — to Mowery for financial advice.
After being questioned by state securities officials, Mowery sent letters in April 2014 to clients referred by Paxton. The letters, which clients were asked to sign, disclosed the fee arrangement with Paxton. But the letters were back-dated to years earlier, when the clients first hired Mowery. The securities board was sharply critical of the practice.
Mowery’s fees were a percentage of how much a client invested. Calculations based on those disclosures show that Paxton received payments amounting from hundreds to thousands of dollars annually.
Paxton apparently made the referrals without knowing Mowery had struggled financially and declared bankruptcy in 2005.
Anthony Holm, a spokesman for Paxton, said the attorney general does not believe he “vouched” for Mowery when he referred his clients to him.
“If someone’s asking you about a financial manager, it’s reasonable to say, ‘There’s one in my building,’” Holm said.
Mowery’s business dealings have only recently surfaced, he said. “We’re all reading it now. But in real time, I don’t believe the community was aware,” Holm said.
In the course of the board’s hearing, most of Paxton’s former clients, whose names had previously been unknown, came forward to testify.
Mark Dickerson, a Paxton law client who opened an account with Mowery in December 2011, testified that had he known of the fee arrangement, “I just would have felt it was a conflict of interest and probably would have looked elsewhere for another financial adviser.”
In addition, most of the clients said they either weren’t informed or had no recollection that Mowery said he was paying Paxton for the referral.
The state also showed that after the investigation began, Mowery asked the clients to sign back-dated letters outlining the fee arrangement. Such letters could have suggested to investigators that the clients were informed in advance, when they were not.
Evidence also showed that Mowery tried to alter his letterhead to match the address he used at the time the client contracts were signed.
Mowery testified that he saw the forms were missing from his files and was just trying to replicate the letters. He said that he forthrightly admitted to investigators when asked that he had created the disclosure letters in April 2014.
Several Paxton clients reached by The News declined to discuss the business deals. But records of the hearing show Dickerson and another client, David Goettsche, refused to sign the post-dated letters.
“I didn’t feel like it was a truthful statement for me to make,” Dickerson testified.
For the sake of argument, let’s accept Paxton’s word that he had no idea his buddy Mowery was treading water at the time that he was referring clients to him. The reason why Paxton looks like such a sleaze here is not that he was tossing some business to a friend, but that he was getting a kickback for it without disclosing it to the clients he was sending Mowery’s way. If I recommend a product or service to you, and then later you find out I got a commission for making that recommendation but didn’t tell you that up front, doesn’t that make you wonder about my motivations and objectivity? Wouldn’t it make you feel like you had been used, even just a little?
A few years back there was a big kerfuffle in the world of mommy bloggers, some of whom had been busy doing just that – promoting products and services for which they were being compensated but not disclosing that they were being rewarded for doing so. In the end, after much kvetching and tsouris, everyone agreed to the should-have-been-blindingly-obvious-from-the-get-go solution that the ethical thing to do in this situation is to say up front that you receive a boon from this product or service that you are currently shilling. This is what Ken Paxton failed to do. Shouldn’t we expect our Attorney General to hold himself to the same standards of integrity as these mommy bloggers? I don’t think that’s too much to ask here.
Note that this is a separate matter from the criminal complaint against Paxton, which is about him failing to file the requisite paperwork with the state before soliciting clients for his buddy. Clearly, though, if Paxton had been an ethical person, he would not have gotten himself into this kind of trouble. One wonders if he has truly learned that lesson, or if he’s just hoping to get away with it at this point. PDiddie and the Lone Star Project have more.