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Texas State Securities Board

Who else can we think of who’s alleged to have violated Texas securities law?

Into every story about cryptocurrency, some amount of absurdity is sure to follow.

Texas is investigating celebrities who had endorsed FTX, the now bankrupt cryptocurrency firm, for potentially violating state securities laws.

The Texas State Securities Board started looking into FTX’s operations last month over whether the exchange’s yield-bearing crypto accounts were providing residents with unregistered securities. Since the company’s collapse on Nov. 11, the board has significantly expanded its probe to examine the impact of this multibillion-dollar bankruptcy.

And promotions of FTX by celebrities such as the Golden State Warriors’ Steph Curry and the Tampa Bay Buccaneers’ Tom Brady are now part of this broadened investigation, as first reported by Bloomberg News and confirmed by The Texas Tribune.

It also comes amid a class-action lawsuit filed in Florida against Curry, Brady and other celebrities — mostly high-profile athletes — which alleges that FTX had used their endorsements as part of a scheme designed to take advantage of “unsophisticated investors.” It also names FTX’s former CEO Sam Bankman-Fried.

“Anyone who renders investment advice in Texas typically needs to be registered and they typically have to truthfully disclose all known material facts,” said Joe Rotunda, the state board’s enforcement director. “In Texas, there is not a different system of justice or regulation for people who are celebrities.”

It’s currently unclear if any prominent Texan would be investigated, but Rotunda said his team is still compiling a list of relevant parties based on recent court filings by FTX’s current CEO John J. Ray III and the class-action lawsuit. In particular, it will be looking at what the promoters disclosed, how they were compensated and how their promotions were scripted and filmed.

“It’s important from a securities regulation standpoint, and from a bankruptcy standpoint, to determine the ways FTX was encouraging clients and Texans to use FTX and invest with FTX,” he said.

He added that his team will also have to consider how the relevant law applies in this situation, since it was established via a 1985 case involving an investment and financial newsletter being distributed via fax.

“That’s a far cry from social media and broadcast advertisements, let alone tokens and blockchains, right?” Rotunda said.

I mean, okay, that’s their job and I appreciate that they are not giving anyone a pass for being a celebrity. It’s just that I personally don’t expect a celebrity endorser to be an actual expert on the thing they’re being paid to endorse. Maybe they should have some level of knowledge, when we’re talking about a financial product, but as a general rule I just figure either they like the thing they’re shilling for or they like the money they’re getting for the shilling. I don’t need for Jose Altuve and Alex Bregman to be salsa connoisseurs in real life. It’s just an ad.

On the other hand, given the best known example we have of a prominent person being accused of violating state securities law (hint: his name rhymes with Pen Kaxton), it could be a decade or more before any of them find themselves answering to the charges in question. If I’m Tom Brady’s lawyer, I’m probably telling him to worry about other things over this one. He’s not in any near-term danger.

Quid pro Paxton

How tawdry. And I can’t wait to hear more.

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Late last year, Texas Attorney General Ken Paxton fired multiple senior aides who accused him of accepting a bribe. A court filing obtained by The Texas Tribune reveals for the first time what four of those aides believe Paxton received in exchange for helping a donor with his business affairs.

An updated version of a lawsuit filed by the four whistleblowers claims that Austin real estate developer Nate Paul helped Paxton remodel his house and gave a job to a woman with whom Paxton allegedly had an affair.

In return, the aides allege, Paxton used his office to help Paul’s business interests, investigate Paul’s adversaries and help settle a lawsuit. The claims in the filing provide even more details about what the former aides believe Paxton’s motivations were in what they describe as a “bizarre, obsessive use of power.”

“Some of Paxton’s actions directing the [Office of the Attorney General] to benefit Paul were criminal without regard to motive,” the amended petition reads. “Others were so egregious and so contrary to appropriate use of his office, that they could only have been prompted by illicit motives such as a desire to repay debts, pay hush money, or reciprocate favors extended by Paul.”

[…]

The latest filing is vague on many details. It says that Paxton purchased a home worth around $1 million in the Tarrytown neighborhood of Austin in 2018. In 2020, the filing says, the house underwent renovations, “although permitting records in Travis County could not be located.”

“In mid-2020, some of the Plaintiffs received information suggesting that Nate Paul, either personally or through [a] construction company he owns and controls, was involved in the project,” the lawsuit states.

The filing doesn’t describe the nature of Paul’s alleged involvement or how they received the information.

The whistleblowers for the first time also allege that Paxton may have helped Paul because the developer gave a job to a woman with whom he had an extramarital relationship. The lawsuit notes that the woman had no previous experience in the construction industry, “much less managing construction projects.” The woman, who the Tribune is not naming because she is not a public figure, did not return a call for comment.

See here, here, and here for some background. It’s important to remember that what have here are allegations, not evidence. This could all fall apart in court, if it ever makes it that far. Which doesn’t mean we can’t enjoy it for what it is, and hope that it all makes Paxton SO MAD. We just need to maintain perspective for the time being.

The last whistleblower

Nothing like a fully cleaned house.

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The Texas attorney general’s office has fired the last remaining whistleblower who alleged Ken Paxton broke the law in doing favors for a political donor — just days after aides had sued the agency alleging they suffered retaliation for making the report.

Deputy Attorney General for Legal Counsel Ryan Vassar — who had already been placed on paid leave — was fired Nov. 17, according to internal personnel documents obtained by The Texas Tribune, making him the fifth whistleblower to be fired from the agency in less than a month. The three others who reported Paxton to law enforcement have resigned.

On Nov. 12, Vassar and three of his former colleagues filed a whistleblower lawsuit against the Texas attorney general’s office, claiming they had suffered retaliation after they told law enforcement they believed Paxton broke the law by using the agency to serve the interests of a political donor and friend, Nate Paul.

Joseph Knight, Vassar’s attorney in the lawsuit, said the justification Vassar was given for his termination amounted to “made-up, nonsense reasons” — and that he believes the firing was an act of retaliation. Vassar was hired by the agency in 2015.

Neither the attorney general’s office nor Ian Prior, a political spokesman for Paxton, returned requests for comment on why Vassar was terminated, though Prior has said previous terminations were not acts of retaliation but rather related to policy violations.

See here for more on the whistleblowers’ lawsuit. As we know, the FBI is investigating Paxton for the allegations that have been leveled against him regarding Nate Paul. Nothing else new to report here, so just let the anticipation wash over you.

Paxton sued by four whistleblowers

Start popping the corn.

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Despite his role as the state’s top law enforcement officer, Attorney General Ken Paxton “believes he is above the very law” he is supposed to uphold, several whistleblowers say in a new lawsuit seeking damages after he allegedly retaliated against them.

In the lawsuit filed this week in Austin, four top former Paxton aides recounted some of the extraordinary efforts the attorney general allegedly made on behalf of his friend and campaign donor Nate Paul, an Austin real estate investor — everything from empowering Paul to go after business adversaries to helping him stave off foreclosure.

They say Paxton frequently met with Paul without his security detail present and abused his office to “advance the legal and personal interests” of the Austin businessman. Over time, Paxton “became less rational in his decision making and more unwilling” to listen to criticism of his actions, they said.

[…]

“The most senior members of the [office of the attorney general] believed in good faith that Paxton was breaking the law and abusing his office…,” ” the lawsuit says.

The lawsuit provides more detail about allegations that have been leaking out in press reports since early October, including Paxton’s efforts to hire an outside lawyer to oversee a criminal investigation sought by Paul.

The FBI raided Paul and his businesses last year, and he has complained vociferously that he was treated unfairly and illegally by state and federal law enforcement. Those complaints reached Paxton and eventually led the attorney general to launch a probe — at Paul’s urging.

“Paxton rarely showed an interest in any pending criminal investigations, but he showed an extraordinary interest in the investigations sought by Paul,” the lawsuit alleges.

Among the “perceived adversaries” that Paul wanted the attorney general’s office to investigate: a federal magistrate judge, FBI agents, a federal bankruptcy judge, a local charity and a credit union, according to the lawsuit.

Though criminal investigators concluded “no credible evidence existed” to warrant state charges, Paxton pressed on and eventually hired an outside lawyer to oversee an investigation, which has since collapsed amid the controversy.

The lawsuit doesn’t just give more detail about the accusations that have already been reported. It also provides fresh allegations about Paxton’s abuse of his power to make rulings in disputes over the release of government records — once again to benefit Paul.

Though the attorney general’s office makes rulings in up to 40,000 open records disputes each year, the whistleblowers say they are “only aware of Paxton taking a personal interest in decisions that relate to Paul.”

In one instance involving records that Paul was seeking from the Texas Department of Public Safety, Paxton “personally took the file,” which included records sealed by a federal court, and “did not return it for approximately seven to ten days.”

In other open records cases involving Paul he told his deputies what conclusion he wanted them to reach even if it was unsupported by the law, according to the lawsuit.

Oh, mama. Let’s look at the Trib story for more details.

The whistleblowers are asking for reinstatement, as well as compensation for lost wages, future loss of earnings and damages for emotional pain and suffering. If they succeed, it will be taxpayers, not Paxton himself, who bear the majority of the litigation costs.

Under the Texas Whistleblower Act, any adverse action taken against whistleblowers within 90 days of their report to authorities is “presumed” to be retaliation for that report. The firings, as well as other actions alleged in detailed complaints to the agency’s human resources department, all fit within that three-month time frame.

Paxton has dismissed the whistleblowers as “rogue employees” wielding “false allegations.” But media reports in The Texas Tribune and other outlets, as well as public documents, show four instances when the attorney general’s office intervened in a legal matter in a manner that seemed to help Paul — events that are also detailed in the new lawsuit.

Paul and Paxton are friendly, but the full nature of their relationship remains unclear. Paul donated $25,000 to Paxton’s reelection campaign in 2018. Paul said in a court deposition last week that they have known each other for years, and sometimes had lunch together. Asked whether they were friends, Paul said “I consider the relationship, you know, positive.”

[…]

But for the whistleblowers, the most troubling example came this fall, when Paxton hired a 34-year-old Houston defense attorney, Brandon Cammack, to vet complaints made by Paul that he had been mistreated during the 2019 raid on his home and office.

Maxwell and Penley had been tapped to look into Paul’s complaints given their leading roles in law enforcement and criminal justice. But they had found, according to the lawsuit, “no credible evidence existed to support any state law charges.”

When Penley said he believed the investigation should be closed, Paul, his attorney and Paxton all “pushed back.”

Paxton soon turned to an outside investigator, Cammack, to vet Paul’s complaints against authorities, hiring the young lawyer through a process his top aides characterized as unusual and improper.

The office also considered hiring Joe Brown, a former U.S. attorney in the Eastern District of Texas and onetime Grayson County district attorney — experience, legal experts say, that would have better positioned him for the position. Brown told The Texas Tribune he interviewed for the job in late August but eventually negotiations stalled.

Emails Brown sent the agency show he was concerned about allowing the attorney general’s office — or Paxton himself — to direct a probe that would ultimately lead to prosecution. One of the authorities Paul targeted in his complaint was the Texas State Securities Board, which in 2014 fined Paxton $1,000 for violating the Texas Securities Act, a law he was later indicted for violating.

“While I will fully investigate the circumstances related to the referral received, and provide a report related to any potential criminal charges, I am not committing to handling the prosecution of any resulting case,” Brown said in an email to the agency.

But he added that he might be willing to take on such a prosecution “after any ethical conflicts which could arise have been fully considered.”

Ultimately, the agency opted to hire the less experienced Cammack — Paxton’s decision, according to the lawsuit.

The four plaintiffs are David Maxwell, Mark Penley, Blake Brickman, and Ryan Vassar. I wonder if the other whistleblowers have their own legal action planned, or will just be witnesses in this one.

Reading these stories crystallized something for me that I hadn’t consciously considered before, which is why would Ken Paxton do all this stuff for one asshole like Nate Paul? Not to be too crude about it, but a $25K campaign contribution only buys you so much. There’s plenty of that kind of money out there for Paxton, so why would he (allegedly) do all of this crazy and maybe illegal stuff for that guy? There has to be more in it for him than that. All of these stories note that the “full nature of the relationship between Paxton and Paul is unclear”, and that just has to be the key to cracking this. There is something else we don’t know, maybe more than one something else, and until we find out what that is, we are not going to understand this story. Maybe this lawsuit will be the fulcrum that helps unearth whatever that is.

No new judge for Paxton

Sorry, Kenny.

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Texas Attorney General Ken Paxton, who is still fighting five-year-old felony securities fraud charges, has failed in his bid to kick a Democratic Harris County judge off his ongoing criminal case.

An administrative judge in Houston, Susan Brown, denied Paxton’s motion to recuse Judge Jason Luong from the case, the Dallas Morning News first reported Friday.

It’s a loss for Paxton’s team in the long-running prosecution, which has yet to go to trial amid side fights over venue and prosecutor pay that have spanned years and bounced between numerous courts across the state. Paxton, a Republican, has maintained his innocence in the case, in which he is accused of persuading investors to buy stock in a technology firm without disclosing that he would be compensated for it.

[…]

“We’re gratified that Judge Brown found that Paxton’s motion to recuse Judge Luong was baseless,” said Brian Wice, one of the prosecutors taking Paxton to trial. “We’re confident that Judge Luong will find that Paxton’s motion to keep from being tried in Harris County is cut from the same cloth.”

See here and here for the previous updates. Here’s that DMN story.

Luong, a Democrat, is the fourth judge to preside over Paxton’s case since the attorney general was charged in July 2015. The first judge to preside over the case recused himself early on. Paxton successfully argued for the recusal of the second judge, Tarrant County Republican George Gallagher, over his objections. The third judge to preside over the case, Harris County District Court Judge Robert Johnson, recused himself last month because the attorney general is representing him and several other judges in a lawsuit challenging the region’s cash bail system.

Paxton’s lawyers argued that Luong should be removed from the case for this same reason. The prosecutors, however, said Paxton wanted to recuse Luong because he could reverse Johnson’s decision, made just before his recusal, to move the case out of Harris County. The case was moved from Collin to Harris County in 2017 after the prosecutors argued that they would be unable to ensure a fair trial in Paxton’s backyard.

All righty then. What is unclear to me from these stories is whether or not Team Paxton can appeal this ruling. I’m sure if they can they will, all previous nattering about wanting to get their guy his day in court aside, but that is not addressed and they did not comment. I’m sure we’ll find out soon enough. I also assume any ruling Judge Luong may make on where the trial should be will wait until that happens, if it does. So we don’t yet know how much more time is on the clock before something substantial happens.

Paxton (again) wants another judge on his case

Round and round they go.

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Defense attorneys for Texas Attorney General Ken Paxton — whose indictment for felony securities fraud is now more than five years old — are again asking for a different judge to oversee the case. It’s the latest turn in a long-delayed prosecution that has bounced all the way from a trial court in North Texas to the state Supreme Court in Austin, and now sits in legal purgatory in Houston.

Paxton’s attorneys wrote Thursday that Judge Jason Luong should recuse himself from the case because the attorney general’s office is representing him — among a group of about 20 Harris County district court judges — in an unrelated lawsuit over bail practices. Robert Johnson, who oversaw the case until recently, voluntarily recused himself from the case for that reason earlier this summer. A Houston appeals court reassigned the case to Luong late last month.

“Judge Luong’s impartiality might be reasonably questioned” because Paxton is defending him, Paxton’s attorneys argued in a filing this week.

[…]

The prosecutors appointed to take Paxton to trial shot back Friday, arguing that Luong should remain on the case.

“Because Paxton’s palpable fear that Judge Luong will follow the law and keep these felony cases in Harris County does not come within a time zone of meeting the Draconian burden required for recusal, his motion is without merit and should be denied,” prosecutors Brian Wice and Kent Schaffer wrote.

And they noted that last month, Paxton’s attorney Philip Hilder told the Houston Chronicle that Johnson “did not need to recuse himself on the matter since … the allegations against Mr. Paxton do not involve his official capacity but rather his individual capacity.”

See here for the previous update. I don’t think the Paxton argument about a potential conflict of interest due to the bail lawsuit is completely without merit, but I do agree that it’s a thin reed. I mean, the AG’s office is basically defending the office of Criminal District Court Judge in this lawsuit, and Jason Luong just happens to be in that category. It’s Jason Luong in his official capacity, not Jason Luong, person of Texas. It’s true that Judge Robert Johnson agreed to recuse himself on those grounds, but that doesn’t mean other judges would agree with that position. It’s also true that the question could be made moot, either by Judge Luong making like Chuck Silverman and Brian Warren and filing a motion in agreement with the plaintiffs, or by the presiding judge in the bail case granting the motion to dismiss that was recently filed. Of course, a ruling on that motion could take months, and we needn’t wait that long. The point is, though, that there are other ways to resolve this conflict, if one agrees that there is a conflict.

And I too would point out that Team Paxton was just the other day talking about how their guy is ready for his day in court and that the prosecutors should quit fighting the effort to move the case back to Collin County so we can get this show on the road already. Funny how one’s perspective can change on that. It’s been pretty much entirely the work of Team Paxton and his political supporters that have caused this case to drag on for now more than five years. The DMN, in its reporting on this latest action, provides a handy timeline.

The prosecutors, Paxton’s lawyers added, are improperly trying for a do-over on this change-of-venue decision.

“It simply defies belief that the State can get two bites at the apple on the critical jurisdictional issue that Judge Johnson already properly ruled on by allowing a new judge who is similarly situated with Judge Johnson (i.e., both represented by the Texas Attorney General in the same case) to review Judge Johnson’s prior ruling. This is the ultimate appearance of impropriety.”

In their response, the prosecutors said Paxton’s own lawyers already undercut their argument when they told the Houston Chronicle last month that Johnson never needed to step off the case.

“He did not need to recuse himself on the matter since it had been ordered back to Collin County and the allegations against Mr. Paxton do not involve his official capacity but rather his individual capacity that predates his election to that office,” Paxton attorney Philip Hilder told the Chronicle.

A Collin County jury indicted Paxton in July 2015. Since then, his case has been repeatedly delayed by fights over where the trials should take place, how much the prosecutors should make and what judge should preside. Paxton’s defense team spent more than a year attempting to have the charges against their client thrown out. They failed.

Hurricane Harvey also delayed the case and many others in Houston. The COVID-19 pandemic could further push any possible trial back.

Paxton is charged with two first-degree felonies over allegations that he persuaded friends to invest in a McKinney technology company called Servergy Inc. without telling them he received 100,000 shares of stock. He also is charged with a third-degree felony, accused of funneling clients to a friend’s investment firm without being registered with the state. The Texas State Securities Board reprimanded and fined Paxton $1,000 for this failure to register in 2014.

If found guilty, Paxton could face two to 10 years in prison for the third-degree felony and five to 99 years for each of the first-degree felonies, as well as fines. He has pleaded not guilty to all of the charges.

When I started writing this post, I began with the post title, and I was pretty sure that it was Paxton who had demanded a new judge in the past, but I wasn’t sure and I knew it would take a lot of archive-diving find an answer. I’m thankful the DMN did that work for me. Who wants to bet this case will still be active when the voters go to choose an AG in 2022?

Paxton’s trial date set for September 12

Mark your calendars.

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Attorney General Ken Paxton’s newly relocated criminal trial is scheduled to begin Sept. 12.

The judge in the case set the trial date Wednesday, a day after moving the proceedings to Harris County. The trial had originally been scheduled to start May 1 in Collin County.

The judge, George Gallagher, said in his scheduling order that the trial “will conclude no later than” Sept. 22. The order also said jury selection will begin Sept 11.

[…]

Paxton is now seeking a new judge in the case. Hours after Gallagher sent the trial to Harris County on Tuesday, Paxton’s lawyers told the judge they would not give their permission for him to follow the case to the new venue.

See here for the background, and here for more on Paxton’s attempt to get a new judge. I presume someone still needs to rule on that motion, and my guess is that first Judge Gallagher will have the opportunity to step down on his own, and if he chooses not to do so the administrative judge will rule on the motion. (You lawyers please feel free to correct me on this.) I don’t think that will take enough time to disrupt the proposed schedule, but if a new judge is installed I suppose it could. Finally, note that Paxton will only be tried on the lesser charge that he failed to register with the state securities board. If he is convicted, then prosecutors will proceed on the much more serious charges of securities fraud; if they fail, I presume they will cut their losses and go home. Between this and the Stockman trial, we’ve got quite the full calendar ahead of us. The Chron has more.

Paxton asks appeals court to reconsider

Pretty please?

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Lawyers for Attorney General Ken Paxton on Wednesday asked a state appeals court to reconsider its recent ruling that upheld the criminal charges against him.

The motion did not address the two most serious charges alleging that Paxton committed fraud when he solicited investors in Servergy Inc. without disclosing that he was being paid by the McKinney tech company. The Dallas-based 5th Court of Appeals rejected Paxton’s request to dismiss the first-degree felony charges in a June 1 ruling.

Instead, Wednesday’s filing argued that judges on the appeals court incorrectly applied the law when they also rejected Paxton’s bid to dismiss a third charge — failure to register as an investment adviser representative with the State Securities Board, a third-degree felony.

Paxton’s legal team argued that the court incorrectly held that defendants violate the law merely by giving advice without being registered. Advisers also have to be aware that they have a duty to register, an essential detail the court mistakenly dismissed as irrelevant, the defense lawyers said.

“Guilty knowledge must be proven,” Paxton’s lawyers told the court. “Accordingly, Paxton respectfully requests that the court rehear this case and correct that error.”

See here for the background. The motion to rehear is here. To my layman’s eye, it looks like hair-splitting, but I admit that such technicalities make the world go round, so who knows. Any lawyers want to comment on this?

Paxton’s pal’s firm fined again

A bigger penalty this time, though he’s still in business.

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Mowery Capital Management, a McKinney-based investment firm with ties to indicted Attorney General Ken Paxton, has been fined $90,000 for violating state securities laws by providing false documents to Texas investigators and misleading clients about a past bankruptcy, state filings show.

The cease-and-desist order by Securities Commissioner John Morgan was issued late Friday, officials said.

The order requires Mowery Capital and its head, Frederick “Fritz” Mowery, to “immediately cease and desist from engaging in any fraudulent conduct enumerated herein in connection with rendering services as an investment adviser,” according to the 24-page order that cited six specific violations of state securities law.

The charges paralleled ones recommended by two administrative law judges last August against the firm and Mowery, a longtime Paxton friend and business associate. But the order did not levy harsher punishments that could have included revocation of their state licenses or higher fines ordered for similar violations in other cases.

[…]

According to the order, Mowery violated securities laws by making misrepresentations in required disclosure documents and failing to properly disclose business ties to clients, among other actions.

Securities Board investigators had earlier alleged that Mowery backdated documents to try to show that his firm made required disclosures of a finder’s fee arrangement, apparently involving Paxton.

One allegation was that Mowery provided false testimony by denying to board employees that he had lifted and put on his firm’s website for eight years entire passages written by economist and television commentator Larry Kudlow, without crediting Kudlow.

Other allegations: That Mowery and his firm falsely represented in a client brochure that they had used a “discount broker,” when they were using a more costly firm, and that Mowery had not been in bankruptcy proceedings, even though he had declared bankruptcy in 2005.

See here and here for the background on Mowery, and here and here for his last trip to see the State Securities Board. The cost for that previous trip was $60,000 in fines. It’s not clear to me why there was a separate set of charges, and there’s no mention of the appeal by the Board of the other judges’ decision to leave Mowery’s license intact. What is clear is that the closer you are to Ken Paxton, the more likely you are to be in trouble of some sort. Trail Blazers has more.

Paxton moves to dismiss the charges against him

To be expected.

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[Ken] Paxton’s legal team announced late Monday it had filed six motions to quash the three indictments against him, citing problems with the grand jury process. They also raised other objections to the case in four pretrial applications for writ of habeas corpus.

A Collin County grand jury indicted Paxton earlier this year on charges of misleading investors in a technology company before he was attorney general. Paxton pleaded not guilty.

Paxton’s legal team has raised the prospect that the grand jury was “empaneled in a matter inconsistent with law.” Last month, his lawyers won access to information related to the makeup of the panel.

The special prosecutors handling the indictments have maintained “absolutely nothing improper” happened in the formation of the grand jury. In a statement late Friday, special prosecutor Brian Wice said the motions to quash are “so clearly baseless, neither merits comment.”

A copy of the motions can be found at the DMN Scoop blog, which contains some other interesting tidbits.

Among the allegations in the motion to quash are that [District Judge Chris] Oldner [who oversaw the selection of the grand jurors in Collin County who indicted Paxton] breached the secrecy of the grand jury process by telling his wife that Paxton had been indicted. His wife, Cissy Oldner, then told Collin County commissioner Susan Fletcher about the sealed indictments, according to allegations in the defense’s motion.

Oldner also is accused of entering the grand jury room two separate times during the July 7 session when Paxton was indicted on the charge of failing to register as a securities agent. The defense team also states that Oldner improperly held onto that July 7 indictment until July 28.

The judge, who ultimately recused himself from the case, also issued warrants for Paxton’s arrest rather than allowing him to appear by summons. “It is reasonable to deduce that this was a vindictive action meant to publicly embarrass and humiliate Paxton,” the defense motion states.

[…]

Among the other motions filed late Monday:

– One accused the special prosecutors of improperly providing details to the media about the evidence going before the grand jury. The special prosecutors are also accused of improperly leaking details from the July indictments to media before the indictments were unsealed. The defense motion calls the media interviews and leaks “a clear attempt to taint the potential criminal jury pool.”

– One alleges the indictment for failure to register as a securities agent must be quashed because the three-year statute of limitations on prosecution had passed. The indictment came July 7. Any solicitation by Paxton occurred on or before June 26, 2012, according to the defense team’s motion.

– Two motions sought to quash the indictments because they failed to give adequate notice of specific charges against Paxton and failed to state the specific offense. For example, according to the motion, the indictment failed to say whether Paxton had solicited potential clients or advised existing clients. In another example, the securities fraud indictments allege Paxton was compensated with 100,000 shares of Servergy stock in each of the two instances. But Paxton had only 100,000 shares total, creating an inconsistency that should prompt the indictments to be quashed, the defense argued.

– One moved to quash the indictments because the cases were not referred by the Texas State Securities Board, which has primary jurisdiction over security offenses. The motion also argued that Paxton was already sanctioned by the securities board for failing to register as a securities agent. Seeking criminal charges for the same action would constitute double jeopardy, the motion alleged.

This story provides more details of the defense’s claims, as well as some analysis of their chances for success.

“There is a perception that there are people that are in the pro-Paxton camp,” said Plano attorney Todd Shapiro, who is the son of former Republican state Sen. Florence Shapiro, who was succeeded in her Senate seat by Paxton. “There are others that are in the anti-Paxton camp.”

Paxton’s attorneys accuse Oldner of tainting the grand jury process by violating the secrecy of the panel by talking to his wife about the indictments. Rumors about the judge’s wife and potential judicial misconduct have been circulating for months. Paxton’s supporters have accused the judge of being out to get the attorney general.

[…]

In the affidavit, [Collin County Commissioner Susan] Fletcher describes herself as a longtime friend of Paxton. She also says Cissy Oldner helped with her successful campaign for election to county commissioner. The motion also includes text messages between Oldner’s wife and Fletcher in the weeks before the July indictments.

“Your friend Paxton has not had a good week,” Cissy Oldner said in a text. And later that same night: “This is exactly what we told you was going to happen to Paxton. It’s worse than we ever thought. Over 100k. Ouch.”

Cissy Oldner described herself in a text as “gloating,” presumably over Paxton’s legal troubles. At the time, a grand jury overseen by her husband was beginning to hear evidence against Paxton.

“I understood Cissy’s comments to mean Paxton’s case was not going well for him,” Fletcher wrote.

In her affidavit, Fletcher describes the events that took place on July 28 — the same day that a grand jury handed down twin securities fraud indictments against Paxton. She said Cissy Oldner told her about the indictments around 4:48 p.m.

“I replied to her that I was sorry to hear about Mr. Paxton’s indictment, but did not want to be involved in the matter,” Fletcher wrote. “Cissy reminded me that she had warned me this was going to happen.”

Fletcher said she asked if Judge Oldner was going to recuse himself from the case. Cissy Oldner replied that he would not, she says in the affidavit.

“Cissy also said this was a controversial case, and people will be wondering if the prosecution was politically-motivated,” the affidavit quotes Fletcher as saying. “Cissy encouraged me to remind everyone that this is the process, and the legal process needs to play out. Cissy continued that this was very embarrassing for our county and for Texas. I told her again that I would prefer to step back and not discuss the matter or comment further.”

A little over an hour later, Fletcher said she got another call from Oldner’s wife, telling her not to tell anyone about the indictments because they were sealed. But it was too late; Fletcher had already told other county officials about Cissy Oldner’s call.

[…]

“If he disclosed even the fact of the indictment to his wife, that’s not proper,” said retired state district Judge Michael Snipes. “Even though it’s his wife, that’s not allowed.”

He also said if Oldner did enter the grand jury room while it was in session — as Paxton’s attorneys have alleged in the motion — then that also was improper.

But if even if it happened, Snipes says, “they can’t show prejudice, and you’ve got to show prejudice to quash the indictment.”

He said he does not believe the Tarrant County judge presiding over the case will toss the indictments based on that motion.

Snipes also said did not see selection of the grand jurors as improper.

There’s more in both stories, so go read the whole thing. Paxton is certainly getting his money’s worth out of his defense team, whether he has to pay for them or not. I’d be interested to hear what the lawyers out there think of the defense team’s filings – do you agree with Judge Snipes and Todd Shapiro, who saw it the same way? What it says to me is that we are in for the long haul. Remember how long it took for the Tom DeLay case to get to trial? (Actually, off the top of my head, I don’t remember how long it took, but thankfully Wikipedia reminds me that it was five years from indictment/arrest to the first day of trial.) Basically, the trial judge will eventually rule on the motions (after the prosecution responds and both sides make oral arguments), then it goes to the district appeals court, then finally the Court of Criminal Appeals. So yeah, we’re probably measuring things in years at this point, meaning my suggestion that an already-convicted Paxton could be on the ballot in 2018 is way too optimistic. We may not even know if he has to go to trial by then. WFAA, the Statesman, and the Lone Star Project have more.

Paxton recuses himself from lots of regular AG activity

Other people in the AG’s office are doing parts of Ken Paxton’s job because right now he can’t.

Best mugshot ever

The AG’s office has followed agency policy, state rules and laws to screen Paxton from participating in matters where he may have a conflict of interest, wrote Cynthia Meyer, spokeswoman for the Texas Office of the Attorney General, in an email. The office has screened Paxton’s participation in matters pertaining to his pending charges, any of the five law firms that represent him against those charges, and anything involving the State Securities Board or the Texas Ethics Commission, explained Meyer.

“The OAG will revise this screening procedure as needed to continue to avoid any conflicts. Any recusal under this policy is intended to go beyond the letter and spirit of the governing law and rules,” wrote Meyer.

She wrote that when Paxton recuses himself, the appropriate division in the AG’s office keeps handling the matter, and the AG’s authority is delegated to the first assistant AG.

Bill Mateja, one of Paxton’s five criminal defense attorneys, said it makes sense for Paxton to recuse himself.

“That’s a good thing, because what that indicates is that he either has, or may have, or may perceive to have a conflict of interest, and you actually don’t want him presiding over matters in which he may have real or perceived conflicts of interest,” said Mateja, principal in Fish & Richardson in Dallas.

[…]

The AG’s office assists local prosecutors when they ask for help, but Paxton would recuse himself from those matters if they are similar to his own criminal case.

Paxton has also recused himself from matters involving the law firms where his five criminal defense attorneys work.

“We were requested to give him a list of the matters where the attorney general’s office is on the other side,” said Mateja. “I would imagine nearly every person on his legal team has at least one matter that the attorney general’s office is involved in.”

Paxton has also recused himself from matters in which the AG’s office represents the Texas State Securities Board or the Texas Ethics Commission in court. He will also recuse himself from any open records rulings involving either agency.

The Texas State Securities Board enforces Texas securities laws and can bring administrative, civil or criminal cases against people or firms that violate the law. Previously, the securities board sanctioned Paxton in an administrative case for failing to register as an investment adviser representative. One of his criminal charges includes the same allegations.

[…]

The first public indication that Paxton’s criminal case might be affecting his work in the AG’s office came when he recused himself from signing an AG opinion in late September. The opinion request asked if it was legal for a county to reimburse the criminal defense costs of a county commissioner who was indicted for a crime, but found not guilty in a jury trial. The office determined that common law allowed the county to reimburse the expenses in certain situations.

First assistant AG Chip Roy signed the AG’s opinion, not Paxton.

In a Sept. 28 letter explaining his recusal, Paxton wrote that his administration strives to write opinions with a high degree of legal accuracy and “without any hint of impropriety.

“Staff members involved in the opinion process must recuse themselves from matters in which there may exist an actual or perceived conflict of interest,” wrote Paxton.

Roy wrote a Sept. 28 letter to Brown County to explain why he signed the AG opinion.

“Any such recusal is intended to go beyond the letter and spirit of the governing law and rules in order to avoid even the appearance of impropriety and to demonstrate our ongoing commitment to the highest ethical standards,” Roy wrote.

Link via the Trib. We’re in somewhat unfamiliar territory here. Paxton isn’t the first AG to be under indictment, but offhand I have no idea (and the story doesn’t explore the topic) if those other AGs, like Jim Mattox, did something similar. Anyone with a longer memory than I have want to weigh in on that? As for the question of whether this diminution of duties should be a cause for Paxton to resign, as the Lone Star Project urges, I don’t see anything happening on that front unless Paxton is forced into it, and that won’t happen until Republicans start calling for him to step down. Until then, the crass partisan in me is happy to have an indicted (and hopefully soon convicted) felon putting some taint on the statewide GOP brand and perhaps eventually weighing their re-election bids down. You do you, Kenny.

Securities Board appeals Paxton’s pal’s sanction

“A pattern of deceit” indeed.

Best mugshot ever

Attorney General Ken Paxton’s role in promoting Frederick “Fritz” Mowery’s investment firm helps prove a pattern of deceiving clients and covering up financial troubles, the Texas State Securities Board said Friday.

Last month, two judges assigned to help the board decide whether to take away Mowery’s ability to advise Texans on investment opportunities said while Mowery did deceive clients and securities board staff, his state registration should not be revoked.

In a 62-page response to the judges’ recommendation filed Friday, board staff disagreed, saying Mowery repeatedly “acted with intent to deceive clients and the public” by handing over false documents to state investigators and misleading his clients by lying about a past bankruptcy, among other things.

Paxton’s role in Mowery’s firm helped prove this pattern of deceit, the filing added.

[…]

This pattern caused the board to question whether any of Mowery’s alleged oversights were truly unintentional, the filing adds. Mowery had told staff, in his attempts to retain his registration, that he did not realize he had failed to disclose an earlier bankruptcy to potential clients until he was being investigated by the agency.

“These facts fit a pattern common to Respondents and their disclosure practices. As soon as there is ‘heat’ around an issue, suddenly the necessary disclosure is made,” the board’s filing states.

“Given this pattern, the (judges) should not assume that the misrepresentation about the bankruptcy was an innocent oversight. The timing and Mowery’s pattern of conduct would suggest otherwise.”

See here, here, and here for the background. As I said before, I think Mowery’s punishment needs to include being put out of business, so I agree with the Securities Board. Everyone who voted for Ken Paxton needs to read those quoted bits. You want a Republican Attorney General, fine, that’s your choice. Do you really want someone who is deliberately and habitually this dishonest in his business dealings, especially with clients who are friends and colleagues? Do you really want to go to the mats for someone who is being propped up by wealthy interests who care more about their own access to power than anything else? You tell me. Mowery can respond to this response, and then the judges may alter their recommendations or not as they see fit. I’ll keep an eye on it.

Paxton’s pal’s problems

AG Ken Paxton’s partner in sleazy business Fritz Mowery was also in court on Monday.

Best mugshot ever

Mowery Capital Management, a McKinney-based investment firm with ties to recently indicted Attorney General Ken Paxton, presented false documents to state investigators and misled its clients by lying about a past bankruptcy, two administrative law judges said [last] Friday.

Judges Henry Card and Steven Rivas filed the proposed order Friday, finding that Mowery Capital and its head, long-time Paxton friend and business associate Frederick “Fritz” Mowery, violated state securities laws by sending clients a brochure that said he had not filed for bankruptcy – when in fact he had – and for presenting altered documents to staff with the Texas State Securities Board.

[…]

While the securities board commissioner has the authority to put Mowery and his firm out of business for these violations, Card and Rivas recommend that he not.

The state board will likely oppose the recommendation, however, telling the Chronicle on Monday it can take issue with Card and Rivas’ order when it “misstates evidence or incorrectly applies the law.”

“Although the administrative law judges found that Mowery and Mowery Capital Management engaged in fraudulent conduct, which constitutes the basis for the revocation of their registrations, the staff of the Texas State Securities Board is likely to file exceptions to numerous findings by the (administrative law judges),” said Texas State Securities Board Spokesman Bob Elder, in a statement to the Chronicle.

[…]

The state board will now have 15 days to file its exceptions with Card and Rivas. The judges will then consider the response and can accept some or all of the changes. If the parties cannot come to an agreement, the case could ultimately end up in state district court.

See here and here for the background. I personally think that being put out of business, then being hit with a blizzard of lawsuits, would be an appropriate remedy here. We’ll see what happens next. In the meantime, remember that scammers like Mowery, and by extension Paxton, tend to cheat friends and like-minded individuals. You have to gain someone’s trust in order to get them to give you their money on something that may sound too good to be true otherwise, and it’s easier to gain someone’s trust if that person thinks you’re cut from a similar bolt of cloth. If there’s a real weakness to the political support Ken Paxton still has, it will come from the voices of the fellow conservative Republicans who lost money thanks to him and Fritz Mowery. Keep an eye on that. Trail Blazers has more.

Ken who?

State Republican leaders don’t have much to say about our allegedly felonious Attorney General.

Ken Paxton

Texas’ Republican leaders Sunday continued their radio silence on the indictment of Attorney General Ken Paxton on three felony fraud charges.

Paxton, who was elected as part of a conservative GOP sweep that put Gov. Greg Abbott and Lt. Gov. Dan Patrick into office, will reportedly surrender to authorities Monday in North Texas on felony charges stemming from an alleged investment scheme into the McKinney-based technology company Servergy, as well as his failure to register as an investment advisor representative with the state.

Republicans’ silence comes in stark contrast to the support that followed then-Gov. Rick Perry when he was indicted on felony charges last year. Party leaders were quick to publicly decry those charges as politically motivated and insist Perry would prevail.

Paxton’s indictment could spell trouble for the state’s GOP leadership – generally with voters who may see it as symptomatic of ethics problems in Austin, and even among the conservative grassroots groups that helped elect Paxton but insist that elected officials should be squeaky clean.

Democrats and government-watchdog groups continue to blast the indictment Sunday as high-lighting cronyism among the state GOP leaders. Several called for his resignation.

Neither Abbott nor Patrick, who both championed ethics during the campaign and in the legislative session earlier this year, has commented on Paxton’s predicament.

[…]

The Texas Republican Party did not return calls and emails seeking comment since the news broke Saturday. Other Paxton supporters, including state legislators who count the same conservative groups among their supporters, remained silent over the weekend.

Calls to a spokesman for U.S. Sen. Ted Cruz were not returned Sunday.

But they have not always been so silent. During last year’s campaign, an array of GOP luminaries from Abbott to Cruz, now a presidential contender, were effusive in their praise for Paxton even after he admitted and was punished for violating state securities.

Cruz, a star among Christian conservatives and tea party activists, referred to Paxton as “a good friend” at campaign rallies and cited Paxton’s support of straight-line conservative causes from opposing Obamacare and federal overreach to support of voter ID and more border security.

“You’re a good, strong conservative leader,” Cruz said of Paxton in one speech.

Paxton, in return, ran heavily on Cruz’s support, a key proof of his conservative bona fides that some political observers said helped him clinch a victory in the GOP primaries against Rep. Dan Branch, a favorite among establishment Republicans.

Privately, some Austin insiders said the issue was Paxton’s to address. Since it did not involve allegations of wrongdoing in his role as a state official, and because the case involved private business dealings, they said state business was not involved.

No doubt, this is going to cause heartburn for some people, from Cruz to Abbott to Dan Patrick and on down. That will be one of the fun parts about this saga. It’s not like no one could have seen this coming – Dan Branch and Sam Houston both made an issue of it in the elections last year. There were enough voters who cared more about Paxton’s stances on social issues than his integrity or capability, and so here we are. Still, let’s not forget how much better we could have done in this department.

Paxton’s Democratic opponent from 2014, attorney Sam Houston, said when the November election rolled around there was a cloud of controversy hanging over the Republican nominee. By then, Paxton had already easily defeated state Rep. Dan Branch, R-Dallas, who had made Paxton’s alleged ethical lapses the centerpiece of his primary runoff.

“Dan Branch and I both talked about a pattern in the election. So I don’t think this is anything surprising or new,” Houston said. “I hate to say I told you so because that doesn’t make me feel better, but we were saying that it was likely that once he was elected that he could be indicted and sure enough, it’s happened. It’s just been even more counts than I even thought would happen.”

[…]

As word of the indictment spread, it was Tea Party activists who were the most willing to speak out about it. Writing for Empower Texans, an influential conservative group, its general counsel Tony McDonald questioned whether the investigations of Paxton had ties to the leadership of House Speaker Joe Straus.

Saying House leaders’ “motives are obvious,” McDonald wrote hours before word of the indictment spread: “Paxton rose to statewide prominence when he challenged Straus for the speakership in 2011. Further, the three are still stinging from Paxton’s defeat of their ally and Straus’s boyhood friend, Dan Branch, in the 2014 primary for Attorney General.”

Those voters who have sided with Paxton through the controversy, [SMU poli sci prof Cal] Jillson said, need to “blink hard twice and ask themselves what they were thinking.”

Some conservatives are taking a less defensive approach to Paxton’s legal troubles, though. North Texas Tea Party activist Mike Openshaw wrote on Facebook that Paxton should “step aside” if the reports about his indictment were true.

“Texas conservatives need to maintain a higher standard,” Openshaw wrote. “We aren’t Democrats.”

Yeah, we Democrats knew he was a crook a long time ago. Welcome to the table, but I’m not holding my breath waiting for your colleagues to come along with you. They’re all doing their best to pretend nothing has happened.

“Judge [George] Gallagher has specifically instructed both parties to refrain from public comment on this matter, and we are honoring the judge’s instructions,” Paxton attorney Joe Kendall, a former federal judge, said in a statement.

It was a far cry from the full-throated and indignant denials of other Texas leaders who have — on not entirely rare occasions — found themselves indicted. And it indicated that the state’s top law enforcement official is facing months, if not years, of his office and his stature being diminished under the weight of criminal charges.

“His situation is darkened,” said Republican political consultant Bill Miller.

The difficulties of Paxton’s defense are already stacking up: The investigation was run by the Texas Rangers; a hometown Collin County grand jury indicted him; and the charges spring from his questionable involvement in troubled financial deals, Miller said.

Paxton is accused of encouraging investors in 2011 to put more than $600,000 into a McKinney-based technology company, Servergy Inc. He is charged with failing to disclose to investors that he was making a commission on their investment. And he is alleged to have misrepresented himself as an investor in the company.

In the wake of the allegations has come a deafening silence from Republican colleagues.

“That’s the loudest noise in the room,” Miller said.

“The Democrats will yell for his resignation, and the Republicans will be silent,” he said. “However it’s resolved, he’s seriously wounded.”

They may have to say something now that Paxton has turned himself in for booking and a spectacularly ugly mugshot – seriously, where was Rick Perry’s stylist when Paxton needed him? The state Republican Party did issue a a perfunctorily snotty statement reminding us that even someone like Ken Paxton is innocent until proven guilty (and not subsequently cut loose by the Court of Criminal Appeals). Here’s one reason why at least some Republicans may not be out there standing by him: At least one, Rep. Byron Cook, is a complainant. Awkward! Several other Republicans lost money in a deal involving Paxton as well, though I don’t know if that one is part of the charges against him. Point being, as this is about money and not politics, the lines could get just a little blurry. Settle in and enjoy the ride going forward. Newsdesk, BOR, Hair Balls, Paradise in Hell, Texas Leftist, Trail Blazers, the Lone Star Project, the Observer, the full-of-ennui Burkablog, the Trib, and the Current have more.

UPDATE: Here’s the Republican Party of Texas’ statement on Paxton’s indictment. I did mention that they put out a statement in my writeup above, but there’s a pull quote from a story earlier in the cycle when they hadn’t yet put a statement out, so I’m putting this here for clarity.

Paxton indicted

It just got real, y’all.

Ken Paxton

Texas Attorney General Ken Paxton has been indicted on three charges in Collin County, according to KXAS-TV NBC 5, The Dallas Morning News’ media partner.

The grand jury’s indictments were issued on Tuesday, then immediately sealed. Paxton was indicted on two counts of first-degree securities fraud and one-count of third-degree failure to register. Sources tell KXAS’s Scott Gordon they will be unsealed Monday.

According to WFAA-TV, a Tarrant County judge has been appointed to 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,” Kent Schaffer, one of the special prosecutors assigned to the case told The New York Times. “The grand jury elected to indict, and the indictments all speak for themselves.”

The Trib fills in some details.

Kent Schaffer, one of two special prosecutors who took the Paxton case to the grand jury, told The New York Times that the indictments include three felony counts — two alleging first-degree securities fraud and another alleging a third-degree charge that he failed to register as a securities agent.

Schaffer said Paxton is accused of encouraging others to invest more than $600,000 in a company called Servergy Inc. without telling them he was making a commission and misrepresenting himself as a fellow investor. The grand jury also charged him with failing to register with state securities regulators for soliciting clients for Mowery Capital Management in return for fees.

[…]

State officials do not have to step down from office if they are indicted, but convicted felons cannot serve.

[…]

Another potential problem for Paxton is the cost of defending himself. If he were charged for something he did as a state officeholder or as a candidate, his campaign funds could be used to pay the lawyers who defend him. In the case of charges that stem from his private or personal business activities, his campaign funds are out of bounds, according to experts in state ethics laws. Paxton would have to pay for his defense out of personal funds or find some way to set up a separate defense fund that could solicit contributions on his behalf.

I doubt he’ll have too much trouble raising money to defend himself, but we’ll see how things look on Monday when the indictment is unsealed. Not too many people want to hop on board a ship that’s going down. I also doubt that Paxton will step down any time soon, as it’s much harder to raise the kind of dough he’s going to need to defend himself as a private citizen than as a statewide officeholder, but there will be plenty of calls for him to do so. Here’s the official statement from Texans for Public Justice, whose complaint last year got this ball rolling:

“The only acceptable response to today’s indictment of Attorney General Ken Paxton is his resignation. The state’s highest law enforcement officer must be held to the highest standards of conduct. Ken Paxton’s behavior disqualifies him from serving as Texas’ top cop.”

You’d think so, wouldn’t you? The real question, as Nonsequiteuse asked a month ago, is at what point will Greg Abbott begin to consider Ken Paxton a problem? How long is he going to be happy to work alongside an indicted felon? These are serious charges, and Paxton has already admitted to one of them. Up to you, Governor. Thanks to Scott Braddock for being the first to call my attention to this. The Lone Star Project, Newsdesk, and Hair Balls have more.

Paxton girding for indictment

So are we, Kenny. So are we.

Ken Paxton

A Collin County grand jury is expected to weigh evidence brought by two temporary district attorneys assigned to the case. Paxton’s advisers are furiously preparing for a criminal indictment.

The looming showdown has the camps bickering. Anthony Holm, a spokesman for Paxton, contends the AG should not face criminal prosecution.

“As we’ve said for 14 months now, there was no criminal action because there was no crime,” Holm said. “This was solely a civil event with a $1,000 civil penalty.”

Holm took aim at the special prosecutors assigned to the case, calling Houston lawyers Kent Schaffer and Brian Wice lawyers “whose careers are built on defending the sort of child molesters and Mexican drug cartel leaders that Attorney General Paxton was elected to prosecute.”

Holm also accused a local lawyer who provided information about Paxton to a previous grand jury of having a vendetta.

“The Collin County situation is a drastic departure from objectivity, legal precedent or common sense, and it’s time for people to understand a respected public official is the target of a political vendetta,” Holm said. “This witch hunt must end.”

In a written statement, Schaffer and Wice fired back, saying their investigation was “neither a political vendetta nor a witch hunt.”

“The PR shell game Mr. Paxton’s hired gun employs once again seeks to change the conversation from his client’s conduct to personal attacks on us,” they wrote. “He knows full well that we were appointed by a Republican judge in one of the most conservative counties in Texas to conduct a full, fair and impartial investigation, and that is exactly what we intend to do.”

As the story notes, Paxton admitted to breaking the law to avoid a campaign issue. In his mind, that means the matter was settled, even though it had not yet come to the attention of any prosecutor. Now as we know a complaint has been filed and a special prosecutor appointed with a grand jury waiting in the wings, but Team Paxton wants everyone to believe that it’s all ancient history. It doesn’t work like that, I’m afraid. At least, not for normal people.

But prosecutors now say that at the least, there’s evidence that Paxton violated securities law by not registering with the securities board, a third-degree felony. And Schaffer has said he’ll ask for a first-degree felony indictment, though he won’t elaborate on the charge.

The prosecutors could submit evidence of the securities law violation that Paxton admitted to as a slam dunk case. But at least one legal expert says few people are criminally prosecuted for such offenses.

The state securities board did not refer the case for criminal prosecution.

“It’s technically a violation, but you don’t often see that type of violation charged criminally,” said Dallas lawyer Jeff Ansley, a former Assistant U.S. Attorney for the Northern District of Texas and a former Enforcement Attorney for the U.S. Securities and Exchange Commission. “That’s very rare.”

So the key question remains: What’s the evidence of a first-degree felony?

I assure you, we are all on pins and needles waiting to find out. One hopes that these two career defense attorneys will not pursue excessive charges on flimsy evidence – you know, the sort of thing they are critical of other prosecutors for – so we’ll see what goods they have.

That Paxton is in legal trouble can be attributed in part to the efforts of a watchdog group, and the determination of a local lawyer.

The public integrity unit within the Travis County district attorney’s office said it lacked jurisdiction and forwarded information to Dallas and Collin counties for lack of jurisdiction. Dallas County District Attorney Susan Hawk didn’t touch the case either, saying she was not aware of any alleged crimes being committed in the county.

That left Collin County, where Paxton’s friend and business partner, Greg Willis, is district attorney.

After receiving a complaint from Texans for Public Justice, Willis stepped aside and said that “appropriate investigation agencies, including the Texas Rangers,” should handle the allegations against Paxton.

“As soon as we saw what he signed with the State Securities Board, it was obvious that he was admitting to felony conduct,” said Craig McDonald, executive director for Texans for Public Justice. “If Greg Willis hadn’t stepped aside, this thing would have died.”

Meanwhile, Dallas lawyer and blogger Ty Clevenger took the extraordinary step of sending information about Paxton to members of a Collin County grand jury, including three from the same church. He said he also dropped off information to a grand jury member’s home. He got their names from Collin County officials by asking; in Dallas, Hawk declined to release the grand jury’s names.

The grand jury that will hear the Paxton evidence from the special prosecutors is not the same as the one Clevenger sought out. One should always be a little wary of crusaders, no matter how enticing their claims are, but again, one hopes that the evidence will back up whatever comes out. There’s been a lot of trash talk from Team Paxton, which is either bravado or whistling past the graveyard. That grand jury is now in, and it’s put up or shut up time. The Observer suggests what may be coming.

William Mapp, the disgraced founder of Servergy, Inc., was identified at the courthouse by WFAA reporter Tanya Eiserer. Servergy, based in McKinney, claimed to produce energy-efficient servers for corporate clients. The company made extraordinary claims about its core product, the Cleantech-1000, claiming it consumed “80% less power, cooling, and space in comparison to other servers currently available.” But there was a problem: The federal Securities and Exchange Commission (SEC) alleges that Servergy’s claims about its product were false. And the company, the SEC says, produced fraudulent pre-orders from tech companies like Amazon and Freescale to sell itself to investors.

Servergy raised some $26 million from selling stock between 2009 and 2013, as detailed by information released by the SEC. And it profited from grants from the McKinney Economic Development Corporation (MEDC), a local fund that reinvests money collected by local sales taxes. Servergy continued to receive money from MEDC even after a formal SEC investigation began in 2013. Servergy is also connected to a wide variety of other improprieties and shady activities.

Paxton was a prominent Servergy shareholder, owning at least 10,000 shares. But while other investors simply lost their shirts, Paxton’s role in the Servergy case has generated lingering interest from authorities. In 2014, Paxton’s name was included in a list of search terms used by the SEC to subpoena the company, along with several other prominent figures in McKinney. Mapp’s presence at the courthouse today suggests that Servergy’s case is connected to evidence special prosecutors are presenting against Paxton.

That would be a significant escalation in the case against the state’s AG. A large part of the public defense laid out by Paxton’s spokesman Anthony Holm revolves around the assertion that Paxton’s original violation of securities law, regarding his legal clients, was a simple mistake and civil matter that he corrected when it was brought to his attention. The Servergy episode is a whole different kettle of fish, and while it remains to be seen what the prosecutors have against Paxton in connection to this particular episode, it should be a source of significant concern in the AG’s office.

See here for the background. All I can say is “oh please, oh please, oh please”. We’ll see what happens.

Paxton’s partner in alleged crime

Meet Fritz Mowery, the man who helped get AG Ken Paxton into trouble.

Ken Paxton

Fritz Mowery was on a mission.

Last April, he tried to convince investment clients to sign backdated forms saying they knew Ken Paxton had received money for referring clients.

In a hearing in March, Mowery said he did it, “because it became an issue with Ken Paxton.”

Paxton, who was sworn in as Texas Attorney General earlier this year, acknowledged in May 2014 that he solicited clients for Mowery without being registered with the state securities board to do that. He described it as an administrative error and paid a fine.

“Mr. Paxton’s deal just seems to be, ‘If I say I’m sorry, everything ought to be OK and it ought to be forgotten,'” said John Sloan, who represented a couple that sued Paxton and Mowery after losing hundreds of thousands of dollars in failed real estate deals. “The problem is the law [passed when] he was in the legislature [that] makes the conduct that he was engaging in a felony.”

[…]

A five-day administrative hearing this past March revealed details about the dealings between the two men. Regulators are seeking to revoke Mowery’s securities license and they allege that he engaged in pattern of misconduct that included misrepresentations, acting in his own self-interest over his clients’, and failing to disclose crucial information to clients.

Testimony showed the two men had been working together as far back 2004, the same year that Mowery founded Mowery Capital Associates.

Paxton was paid 30 percent of management fees for referrals that he made to Mowery.

[…]

But the testimony shows the lengths to which Mowery was going to get clients to sign the backdated disclosures last spring.

In one case, a disclosure was dated as having been signed in 2005. In reality, it wasn’t signed until 2014.

Read the whole thing, it’s quite illuminating. Mowery’s defenders and Paxton’s campaign flack insist that this is all just a big misunderstanding, an innocent mistake that anyone can make, and so on. I think there’s only so many times you can ask people who had no idea that Ken Paxton was getting a kickback when he steered them to Fritz Mowery to sign a backdated form saying that they had been informed up front about the Paxton/Mowery relationship before one is forced to conclude that the behavior was habitual and not accidental. That will presumably be one of the things that the grand jury convening in August will consider, along with whatever evidence of other alleged wrongdoing that the special prosecutors say they have found. As I’ve said, I can’t wait to see how that goes.

In the meantime, you may be wondering about Paxton’s legal bills.

Attorney General Ken Paxton, dogged by a cloud of legal uncertainty since taking office in January, is not using taxpayer dollars to pay his lawyers, according to aides, who left it less clear whether he plans to tap his campaign account.

The question of how he has been footing his legal bills flared up Thursday with the disclosure of campaign finances that showed he spent almost $20,000 on legal services during the first half of the year. A Paxton spokesman indicated the expenses did not have to do with the ongoing fallout from his self-admitted violation of state securities law last year.

A special prosecutor overseeing the latest chapter in the saga has said he plans to ask a Collin County grand jury to indict Paxton on a charge of first-degree felony securities fraud. The grand jury is expected to meet in the next few weeks, and Paxton has hired high-powered Dallas attorney Joe Kendall to represent him.

Before Paxton brought Kendall on board, the attorney general was being represented by Matt Orwig and Bob Webster, two Dallas lawyers whose firms did not show up on Paxton’s most recent campaign finance report. Asked Thursday evening about the legal services listed on the disclosure, Paxton spokesman Anthony Holm said in a statement, “My belief is that none of those are related to the events in Collin County.”

[…]

State law prohibits elected officials from using campaign contributions for personal purposes. One exception, however, is when an elected official is defending a civil or criminal action brought against them in his or her “status as a candidate or officeholder.” Holm has long suggested Paxton is only facing the legal drama because he is a top-ranking elected official, while prosecutors have argued Paxton’s political stature has nothing to do with their work.

The Texas Ethics Commission issued an advisory opinion in 1995 that shed some light on how it interprets the so-called “personal use” exception. A district judge had asked the commission whether he could use campaign contributions to pay for his defense against a lawsuit stemming from his time as an attorney before he joined the court. The commission concluded that judge was in the clear as long as he had determined “in good faith that a groundless lawsuit has been filed against him solely because of his status as a judge.”

Defending oneself against felony charges can be quite expensive, as Rick Perry can attest. It will be very interesting to see if Paxton is allowed to tap into his campaign account for this, or it he’ll have to fundraise separately.

L’affaire Paxton gets larger

Oh, yeah.

Ken Paxton

When Attorney General Ken Paxton publicly admitted that he violated a state securities law last year, the State Securities Board was obligated by law to gather evidence against him and immediately refer it to prosecutors who could seek criminal charges.

But prosecutors in Travis and Collin counties said the securities regulators did not refer Paxton’s case to them, an apparent violation of requirements set by state law, the American-Statesman has confirmed.

In May 2014, when Paxton was a state senator running for attorney general in the Republican primary runoff, he accepted a reprimand and $1,000 fine from the State Securities Board, whose five members were appointed by former Gov. Rick Perry.

In that proceeding, Paxton admitted to soliciting clients for a Texas investment firm without registering as an investment adviser representative — a violation that can be prosecuted as a third-degree felony under the State Securities Act — and without disclosing that he would receive 30 percent of management fees.

But despite state law that required Securities Board Commissioner John Morgan to “at once” refer evidence of a criminal violation to the appropriate prosecutors — a standard that has been in place since 1957 — there is no evidence that securities regulators did so in the Paxton matter.

Robert Elder, a State Securities Board spokesman, said the agency would not comment.

In Collin County, where Paxton lived while soliciting investment clients three times between 2004 and 2012 as an unregistered adviser, prosecutors received no information about Paxton’s activities from the board, said Bill Dobiyanski, first assistant district attorney.

In addition, the Travis County Public Integrity Unit — which prosecutes corruption by public officials — did not hear from securities regulators about Paxton’s admission of violating securities law, said Gregg Cox, director of special prosecutions for the Travis County district attorney’s office, which includes the Public Integrity Unit.

[…]

Allegations that the State Securities Board hadn’t followed the law were raised last week in a strongly worded letter sent to Wice and Schaffer by the director of the left-leaning Progress Texas PAC.

In a July 8 letter, Glenn Smith suggested that Gov. Greg Abbott, who was still attorney general at the time, also didn’t follow requirements set out in the Texas Securities Act.

“On the surface, those failures raise suspicions of widespread conspiracy among several agencies and officials aimed at minimizing the criminal exposure of Mr. Paxton,” wrote Smith in the letter, which he provided to the Statesman.

Cait Meisenheimer, an Abbott spokeswoman, declined to comment on Smith’s letter. Wice also declined to comment on the letter, and Schaffer could not be reached for comment.

In his complaint, Smith specifically names Texas Securities Commissioner John Morgan and Collin County District Attorney Willis.

“With something like this, which is a clear confession of a felony by Sen. Paxton, the sort of silence and inactivity of public officials was very suspicious to me from the beginning,” Smith said. “They were compelled to act and failed to act, and this deserves attention.”

See here, here, and here for the background on the State Securities Board stuff, and see the original Statesman story for a copy of the letter. It’s always the coverup that gets you, isn’t it? The State Securities Board, full of Rick Perry appointees, should have followed the law and done its duty. Attorney General Greg Abbott should have followed the law and done his duty. Collin County DA Greg Willis should have done his duty a lot more quickly and without having to be pushed into it. That’s hindsight for you. Now I really can’t wait till the special prosecutors start laying out their case to the grand jury.

Paxton could be in real trouble

Whoa.

Ken Paxton

The criminal investigation against Texas Attorney General Ken Paxton has taken a more serious turn, with special prosecutors now planning to present a first-degree felony securities fraud case against him to a Collin County grand jury, News 8 has learned.

Special prosecutor Kent Schaffer told News 8 Wednesday afternoon that the Texas Rangers uncovered new evidence during the investigation that led to the securities fraud allegations against the sitting attorney general.

“The Rangers went out to investigate one thing, and they came back with information on something else,” Schaffer told News 8. “It’s turned into something different than when they started.”

Schaffer, a Houston criminal defense attorney, said the securities fraud allegations involve amounts well in excess of $100,000. He declined to comment specifics of the fraud allegations.

A first-degree felony conviction is punishable by up to life in prison.

Ponder that for a moment – “punishable by up to life in prison”. Not that I expect any such outcome, but how often do you hear that sort of thing said about an incumbent elected official? Again, this may very well turn out to be nothing, or at least something a lot less than that. But still.

Schaffer said he and the other special prosecutor will begin presenting their case to a Collin County grand jury within the next few weeks. He said he anticipates eight to nine witnesses will appear before the grand jury.

“We believe that there’s sufficient evidence to present to a grand jury,” Schaffer said.

Schaffer said he also anticipates presenting a case involving failing to register, which is a third-degree felony.

The investigation had started with allegations that Paxton violated the law when he failed to register as an investment advisor with the state.

News 8 also learned Wednesday that Paxton had hired a former federal district judge.

“I met with General Paxton and he had retained me to look into the matter,” said Joe Kendall, who practices in Dallas. “I am honored that he did. He’s a good man.”

Kendall told News 8 that he met with Paxton “very recently” in Dallas and confirmed that he was hired within the past two days.

“I’m going to be helping look into the matter,” Kendall said, declining to comment further.

See here, here, and here for the background. The Chron story dredges up a quote from Paxton’s longtime flak Anthony Holm in which he says that “at least three other entities have thoroughly reviewed these matters and each chose not to proceed”. One of them was the Travis County DA’s office, which concluded it didn’t have jurisdiction. One was the Dallas County DA’s office, which didn’t say why it declined to move forward. I’m not sure who the third was, but this sure is beginning to sound like whistling past the graveyard.

Perhaps that’s why Paxton was so aggressive in his response.

“This appears to be a politically motivated effort to ruin the career of a longtime public servant,” Paxton spokesman Anthony Holm said in a statement that also accused the two attorneys of building their case in the press. “These attacks on Ken Paxton appear to have become a political hit-job in the media, perhaps having the effect of inappropriately influencing the grand jury.”

[…]

Holm said Thursday that neither Schaffer nor Wice have “significant prosecutorial experience,” adding that it appears only one case has been prosecuted between the two of them. Neither Schaffer nor Wice has worked as a prosecutor, but both have extensive backgrounds in criminal defense. Wice was on the team that defended former House Majority Leader Tom DeLay, R-Texas, against corruption and money laundering charges.

“Not only do they appear inexperienced as prosecutors, they are from Houston,” Holm said. “Meanwhile thousands of experienced prosecutors and former prosecutors are in the Dallas area.”

Wow. One wonders who it is that authored this “hit job” on Paxton, given that (as a commenter on this Trib story noted) he’s been “indicted in one of the most Republican counties – Collin County – by a special prosecutor appointed by a Republican judge who is a friend of Paxton, in an investigation that was led by the Texas Rangers, which is part of the state government, which is led by all Republicans”. I know he’s just playing to the cheap seats, but you’d think he could at least let us know who he thinks is persecuting him. As for the dig on the special prosecutors, I’m pretty sure that Schaffer and Wice know their way around a criminal courtroom, regardless of what table they’re sitting at. When was the last time Paxton himself was in a courtroom? If this were the runup to a sporting event, we’d say that he just provided some bulletin board material for his opponents. I don’t know if this would be motivational to Schaffer and Wice, but they’re human beings, too. I know I’d focus a little harder after being insulted like that.

Anyway. In case anyone is wondering, if at some point Paxton resigns, the Governor appoints a replacement, who must be confirmed by a two-thirds vote of the Senate. That could get interesting, but we’re way ahead of ourselves. I can’t wait till the grand jury proceedings begin. A statement from Texans for Public Justice is beneath the fold, and Burka, PDiddie, Campos, Juanite, the Current, and the Trib have more.

UPDATE: Well, this sure answers my questions about Schaffer and Wice.

Reached for comment late Thursday, Schaffer said Holm “never denies the criminal conduct.”

“I noticed that in Mr. Holm’s obligatory statement there was not one time that he said that Mr. Paxton did not do the things that we are looking at,” said Schaffer. “I found (that) very concerning.”

Wice and Schaffer issued a lengthy statement criticizing Holm’s remarks as “the usual sound bites, culled from the play book of any public official whose conduct places them in the cross-hairs of a grand jury investigation.

“Tellingly, Mr. Paxton feels that a Dallas address or a career spent as a prosecutor somehow trumps our over seven decades of trial and appellate experience as two of Texas’s most respected criminal lawyers,” the statement reads. “We were brought in from Houston to ensure that an investigation that could have easily been driven by partisan politics and political agendas would not.”

It adds, “The facts, which Mr. Paxton would rather ignore than acknowledge, are, as Churchill said, stubborn things. And that’s exactly what we will provide the grand jury with: the facts. Our investigation will continue to be informed by what our oaths as special prosecutors commands: to do justice. And sound bites and personal attacks won’t change that.”

It. Is. On. Get that popcorn popping.

(more…)

More complaints against Paxton

From the Lone Star Project, spotted on the Quorum Report with the original press release forwarded to my inbox:

Ken Paxton

Lone Star Project research has compiled significant information regarding the involvement of Texas Attorney General Ken Paxton in a series of questionable property transactions in Collin County. Some of the information gathered by the Lone Star Project has already been made public in press reports, while other information has not yet been reported on at all.

In reviewing the information gathered by Lone Star Project research, I realized that the actions of Attorney General Paxton may have gone beyond activities that warrant only political criticism. In fact, the information points to the potential use of insider information and actions by Ken Paxton and his associates that could rise to the level of criminal activity.

In light of this, the Lone Star Project submitted a detailed complaint to the U.S. Attorney in the Eastern District of Texas, which has jurisdiction over Collin County, last month. We also submitted the complaint to the Grand Jury in Collin County which is currently conducting a criminal inquiry into Ken Paxton’s violations of Texas securities laws.

Given that the ongoing investigation into Ken Paxton’s violations of state securities law, we believe his close involvement in questionable land transactions in Collin County also warrant the review of law enforcement officials.

Background:
Last year, the Dallas Morning News reported on a land deal involving Ken Paxton and his business partners involving the purchase of property in the City of McKinney for $700,000. The property was quickly flipped for a selling price of $1 million. The News report details the creation of an appraisal district and zoning change which raised the value of the property before the subsequent sale of the land by Paxton’s company. While Paxton denied knowing about the new zoning designation, associates within Paxton’s business lobbied local officials to obtain the change.

The letters sent by the Lone Star Project to the U.S. Attorney and the Collin County Grand Jury includes additional facts on the land transactions and raise new questions regarding Ken Paxton’s involvement. The information focuses on four specific areas:

  • Even following the 2014 Dallas Morning News story, key questions remain unanswered about the extent to which Paxton and his associates used insider knowledge and political connections to profit from the development of the McKinney Property.
  • A land swap with the City of McKinney in which a narrow strip of property owned by Paxton’s company was traded for a separate property on a nearby street corner – the trade that appears to be of significant benefit of Paxton. The same day of the trade, Paxton’s company flipped the newly acquired property to a private entity for an undisclosed amount.
  • In addition to profiting from the resale of the property acquired by the trade, it appears that a title company connected to Paxton provided the title insurance for the two transactions.
  • Paxton and his associates continue to hold property in Collin County that may also result in a significant profit when it is eventually sold.

Documents Attached:
Letter to the Collin County Grand Jury
Letter to the US Attorney
Background Document

I did blog about that DMN story from last May, but I only noted Paxton’s refusal to release his tax returns during the campaign, since caring about such things was apparently so 2010. Perhaps this is why he was so secretive about it. I can’t find any news coverage of this, so draw your own conclusions about how big a deal it is.

The news release touches on the ongoing investigation in Collin County, whose deadline date is as yet uncertain. Yesterday we got an update on where this stands.

Special prosecutors assigned to investigate Ken Paxton’s alleged violations of state securities laws said this week that they plan to take their case to a Collin County grand jury next month.

The confirmation comes just weeks after a judge expanded the probe to include possible fraud allegations involving the first-term attorney general.

“We are going to the grand jury,” special prosecutor Kent Schaffer told the Chronicle on Wednesday. The process will begin in July when the new grand jury is chosen, and Schaffer said he expects it to take more than the typical three-month period juries sit in Texas.

That puts any possible resolution of the inquiry into at least the October/November time frame. At least we know it’s moving along, which is more than we could have said earlier this year. Trail Blazers has more.

Paxton is all “Whatevs” on the probe against him expanding

What, him worry?.

Ken Paxton

A week after news became public that a Collin County judge had broadened the investigation into Texas Attorney General Ken Paxton’s alleged securities violations, Paxton downplayed the change, saying he already had addressed the matter.

“Same thing as always,” Paxton said of the expanded inquiry.

[…]

Given the widened probe, the case’s statute of limitations, expected to expire this month, could be extended.

“I dealt with this a year ago,” added Paxton, who last year admitted to soliciting clients for a friend’s investment firm without being properly registered with the state — a third-degree felony for which he was reprimanded and fined $1,000.

See here for the background. Paxton has zero credibility and every reason to be dismissive of the possible charges against him, so take what he says here with coronary-inducing amounts of salt. Doesn’t mean he won’t eventually skate – good things happen to bad people all the time – but it won’t be because he thinks he’s “dealt with it”.

When might Paxton be prosecuted?

Attorney Ty Clevenger thinks the clock may be running out on the grand jury in Collin County.

Ken Paxton

As best I can determine, the limitations deadline for charging Texas Attorney General Ken Paxton with state securities violations is June 14, 2015. If so, that means the grand jury must indict Mr. Paxton at its meeting tomorrow or at its next meeting on Tuesday, June 9, 2015, or he cannot be prosecuted for those alleged violations.

[…]

According to transcripts of administrative hearings that were conducted during the week of March 9, 2015, Mr. Mowery asked his clients to backdate numerous documents, including one that was backdated to June 14, 2012. (I’m probably not supposed to have the transcript, but here it is anyway; and here are the state’s closing brief and Mowery’s closing brief). According to pages 285 and 287 of that transcript, the document was backdated to make it appear that Mr. Mowery informed Henry Allen and his wife (whose first name is not listed) about the referral fee arrangement with Mr. Paxton.

In reality, the Allens did not learn about Mr. Paxton’s kickback referral fee until April of 2014, when Mr. Mowery asked them to sign the backdated document. I have not seen the document itself because I do not have the hearing exhibits, but two sources have independently told me that June 14, 2012 appears to be the last time Mr. Paxton solicited clients for Mr. Mowery. Add three years to that date, and your limitations deadline is June 14, 2015.

Meanwhile, a source tells me that special prosecutors Brian Wice and Kent Schaffer have promised to present the case to the grand jury before its term expires on June 16, 2015. Even so, I do not understand why the special prosecutors would wait until so near the limitations deadline to present the case. Granted, I don’t know what they know, but this case appears to be pretty straightforward. Mr. Paxton either solicited clients or he did not, and either he was registered as a securities representative or he was not.

The Travis County DA’s office had already investigated the case before Mr. Wice, Mr. Schaffer and the Texas Rangers were assigned, and Mr. Paxton had already signed a sworn statement and an agreed order with the State Securities Board accepting a $1,000 fine because he solicited clients in 2012 without being registered. In other words, it appears that our attorney general has already admitted under oath that he committed a felony.

So how many more details do Mr. Wice and Mr. Schaffer need to gather before they can present the case to the grand jury? I realize they may not be ready to go to trial, but an indictment does not require a trial because it is not a conviction. The prosecutors only need to convince grand jurors that it is more likely than not that Mr. Paxton committed a crime. The trial comes later (if it comes at all).

I sure hope that means they’re getting close to doing something. In the meantime, the two special prosecutors may have more room to investigate:

In late April, Judge Scott Becker appointed Houston criminal defense attorneys Brian Wice and Kent Schaffer as special prosecutors to assist in the “investigation and, if warranted, the prosecution of Ken Paxton for the securities law complaints currently under investigation by the Texas Rangers.”

In an amended order issued May 20, however, it was expanded to “any and all offenses arising out of Ken Paxton’s alleged violations of the Texas Securities Act.”

“I requested the scope of our investigation be expanded because of things that were uncovered in the course of the investigation,” Schaffer told the Chronicle Thursday. “We wanted to make sure the scope of our investigation was not limited by the original order. We were simply going where the evidence took us.”

Very interesting, wouldn’t you say? The Trib suggests that the expansion of scope could also mean an extension on the statute of limitations. You can expect that to come up in a motion to dismiss some day, if we get that far. Be that as it may, I can’t wait to see what happens next. And just think, if Paxton does get indicted, no one will be able to blame it on those dirty hippies in Travis County. Link via the Dallas Morning Views blog.

Ken Paxton continues to be an ethical morass

We continue to learn more about just how compromised our Attorney General is.

Ken Paxton

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.

Willis recuses himself from Paxton probe

Good call.

Ken Paxton

Collin County District Attorney Greg Willis has asked a judge to relieve him from further involvement in investigations of his friend, Texas Attorney General Ken Paxton.

Late Monday, Willis said that earlier in the day, he filed a motion with state District Judge Scott Becker to recuse himself from probes of whether Paxton, a friend and business partner, should face criminal charges for failing to obtain a Texas State Securities Board license. Becker, the administrative judge in Collin County, could name someone to act in Willis’ place as district attorney in the matter.

Earlier this month, Willis asked the Texas Rangers to investigate the Paxton matter and make a recommendation.

“Whenever the Rangers complete their investigation, there will be a district attorney on the case that will have no connection to me or my office,” Willis said in an interview late Monday.

See here, here, and here for the background. I’m glad that Greg Willis had the good sense to do this, and to do it without dragging it out and being coerced or shamed into it. It may well be that Paxton is ultimately cleared of all charges, but until then he needs to be treated the same as anyone else in that position would be. Getting a prosecutor who isn’t conflicted is a good start for that. The Trib has more.

Paxton evades prosecution

In Travis County, anyway.

Ken Paxton

New Attorney General Ken Paxton, who in 2014 was found to have violated the Texas Securities Act, will not be prosecuted by the state’s office that investigates public corruption, officials said Thursday.

Paxton, a former state senator from McKinney, violated the Securities Act by soliciting investment clients without being registered, as required by law, according to a disciplinary order last year from the State Securities Board. Under the order, Paxton was “reprimanded” and fined $1,000. But Thursday’s announcement signals that the case may be closed.

“Our investigation did not find any additional criminal activity over which our office has venue, so we are concluding Travis County’s involvement in this matter,” said Travis County District Attorney Rosemary Lehmberg, whose office includes the state’s public integrity unit.

[…]

Lehmberg’s office said it had forwarded a portion of its investigation to prosecutors in Collin and Dallas counties, which could investigate the securities board’s findings further.

See here for the background. In addition to possible action in Collin and/or Dallas Counties, there’s also still the SEC complaint, the state bar grievance, and the lawsuit to get his records from the State Securities Board out there. Paxton may have dodged one bullet, but he shouldn’t feel lucky just yet. Trail Blazers and the Statesman have more.

Ken Paxton is still an ethical morass

He’s just now a statewide ethical morass.

Sen. Ken Paxton

A state judge will determine whether to revoke the securities license of Frederick Mowery, who was linked to the State Securities Board’s May reprimand of Attorney General-elect Ken Paxton, for allegations that included failure to disclose conflicts of interest, plagiarism and lying to investigators.

Mowery was given 20 days to respond to the allegations — announced Tuesday by the securities board — and invited to appear at a Jan. 27 hearing before an administrative law judge in Austin.

Mowery and his McKinney company, Mowery Capital Management, became embroiled in the race for attorney general last May, when Paxton agreed to a securities board reprimand and $1,000 fine for soliciting clients for Mowery’s firm, receiving 30 percent of management fees without registering as an investment adviser representative as required by state law and without disclosing the business relationship to potential clients.

[…]

The order notifying Mowery of the allegations did not mention Paxton by name.

However, the order accused Mowery of falsifying disclosure documents for a solicitor who appears to be Paxton — the circumstances and language used to describe the relationship between the unnamed solicitor and Mowery appear verbatim in the security board’s reprimand of Paxton.

According to the allegations, Mowery backdated notices disclosing the solicitor’s compensation arrangement to make it appear that two clients were properly notified about the arrangement.

I don’t know what effect this might have on any of the pending actions against Paxton, but I figure if Mowery has his license revoked it won’t look too good for our AG-to-be. I also strongly suspect there are more shoes to drop here. Should be an interesting year next year.

Lawsuit filed to get Paxton records from State Securities Board

From the Lone Star Project on Wednesday:

Sen. Ken Paxton

Today the Texas Coalition for Lawyer Accountability (TCLA) filed suit against the Texas State Securities Board to obtain documents linked to Republican attorney general candidate Ken Paxton’s admitted felony violation of state securities law.

“Ken Paxton’s actions define corruption. Paxton has not only disqualified himself to serve as Texas attorney general, but to even practice law,” said Matt Angle, Lone Star Project director. “Current AG Greg Abbott’s silence on the Paxton felony is deafening and reflects his tolerance for corruption and his own lack of character and ethics. Both Paxton and Abbott are hiding out and hoping the press will ignore admitted criminal behavior. TCLA is responsibly working to assure that doesn’t happen and properly demanding accountability for the legal profession,” he added.

Despite the Securities Board’s own ruling that Paxton broke the law, slapping him with a Disciplinary Order and fine, it has refused to make documents related to their investigation available to the public. On August 21, TCLA requested that the board provide records pertaining to its investigation of Paxton and the illegal solicitations he made in exchange for kickbacks from long-time friend and partner-in-crime Frederick Mowery.

Not only did Paxton admit on record to committing a felony, as an attorney who defrauded his clients, he now must contend with the possibility of disbarment. On August 5, TCLA filed a disciplinary complaint and narrative with the State Bar, seeking the revocation of Ken Paxton’s law license, citing “multiple acts of serious Professional Misconduct in violation of the Texas Disciplinary Rules of Professional Conduct.”

As the Lone Star Project recently reported, Paxton is hiding behind his staff, refusing to answer questions by the media or speak with the public. The Board’s records are therefore “important evidence” in the TCLA complaint with the State Bar, and are directly relevant to unveiling the secrets Paxton has fought so hard to hide.

See here for the background, and here for the TCLA’s statement and explanation of their action. The Texas Politics blog has picked this up, but beyond that I haven’t seen any news coverage. As Iain Simpson commented on my previous post, there are reasons to be wary of self-appointed watchdogs springing into action like this in the middle of an election. On the other hand, I’m not sure what the value of the Securities Board keeping their documents secret is. According to the Statesman, some of the documents were withheld under state confidentiality requirements, but the Texas Securities Act, however, allows a court to order documents to be released for good cause. Which the plaintiffs naturally say they have. Anyway, it’s another little mess of Paxton’s own making that will have to be cleaned up in the unfortunate event that he gets elected.

TPJ files criminal complaint against Ken Paxton

From the inbox:

TPJ Calls for Formal Investigation of AG Candidate Ken Paxton – Criminal Complaint Filed With Travis County DA’s Office

TPJ has filed a criminal complaint with the Travis County District Attorney against State Senator and Attorney General candidate Ken Paxton. The complaint, filed on July 18, seeks a formal investigation into allegations that Paxton committed one or more felonies when, over several years, he failed to register as an investment adviser representative of Mowery Capital Management as the state securities law requires. Paxton previously admitted to state regulators that he solicited clients and was compensated for his services when he was not a registered agent. Paxton also admitted hiding the income he received on his state personal financial disclosures.

Here’s the letter they sent to DA Rosemary Lehmberg and Public Integrity Unit lead prosecutor Gregg Cox. It’s pretty straightforward so I’ll reproduce it here:

Dear Ms. Lehmberg and Mr. Cox,

I believe that Mr. Kenneth Warren Paxton, Jr. has committed one or more criminal felony offenses related to his activities as an investment advisor representative for Mowery Capital Management, LLC (MCM). I encourage your offices to investigate and, if warranted, appropriately prosecute Mr. Paxton for his felony criminal conduct.

The public record appears to be unambiguously clear that Mr. Paxton violated provisions of the Texas Securities Act in 2004, 2005 and 2012 by failing to register as an investment adviser representative of Mowery Capital Management as the law requires.

As widely reported in the media, on April 30, 2014, by sworn acknowledgement, Mr. Paxton admitted to conduct that violated the Texas Securities Act. His sworn acknowledgement resulted in Disciplinary Order No. IC14-CAF-03 entered against him on May 2, 2014 by Texas Securities Commissioner John Morgan.

By agreeing to the Disciplinary Order Mr. Paxton has acknowledged that he solicited clients for MCM and was compensated by MCM for each client he delivered. Mr. Paxton also acknowledged that he was not registered with the Texas Securities Board as a representative of MCM during 2004, 2005 and 2012 when he actively solicited clients and potential investors.

The Texas Securities Act prohibits a person from acting as an investment adviser representative for an investment firm in Texas unless the person is registered as a representative for that particular firm. The Texas Securities Act provides that any person who renders services as an investment advisor representative without being registered as required by
the Act is guilty of a felony of the third degree.

I therefore request that you fully investigate this matter and prosecute any violations if justified by the law and the facts.

Respectfully,

Craig McDonald
Director, Texans for Public Justice

See here and here for the background. That disciplinary order was little more than a slap on the wrist, unless this develops into something. There’s also an SEC complaint pending against Paxton. That’s an awful lot of baggage for a candidate to carry, and one imagines it will have to take a toll on him. I figure at least a few Dan Branch supporters are going to avoid voting for Paxton in November, though how many that may be is anyone’s guess. The one thing about all this that worries me is that once the Democratic District Attorney from Democratic Travis County gets involved, Paxton and his supporters can claim it’s all about partisan politics and that he’s the real victim here. He’s already traveling down that road. If there’s one thing that can overcome revulsion against an ethically-compromised candidate, it’s tribal identity. Still, the facts here are quite plain – Paxton signed legal documents stipulating to what he did – and for sure someone was going to file a complaint. Now we wait and see what Lehmberg and her staff make of it. The Statesman has more.

Paxton gets a slap on the wrist

That’s it???

Sen. Ken Paxton

State Sen. Ken Paxton, a Republican candidate for Texas attorney general, violated the Texas Securities Act by soliciting investment clients without being registered as required by law, according to a disciplinary order made public Friday.

Under the order from the Texas State Securities Board, Paxton was “reprimanded” and fined $1,000. He is also required from now on to disclose in writing his paid solicitor relationship to any clients he refers to an investment adviser.

In at least one instance investigated by The Texas Tribune, a legal client Paxton solicited on behalf of an investment adviser had no idea the senator was getting paid for the referrals, according to court documents.

The State Securities Board, which regulates the securities industry in Texas, released a written statement about the order on Friday.

“In any action the State Securities Board undertakes, the only consideration is the facts of the case. The agency does not consider any extrinsic factors,” said board spokesman Robert Elder. “The order speaks for itself.”

[…]

According to state regulations, any enforcement activities related to the assessment of an administrative fine must be “commenced within five years after the violation occurs.”

The state’s investigation of Paxton’s solicitor activities revealed that the McKinney Republican engaged in unregistered solicitation activities at least three times — in 2004, 2005 and 2012. But only the most recent one occurred within the past five years, so the $1,000 fine assessed against him pertains to only the 2012 violation.

The disciplinary order must be disclosed in a filing to securities regulators within 30 days, meaning it will be part of Paxton’s official record as a registered investment adviser representative.

See here for the background, and here for the disciplinary order. For an “oversight” that occurred three times over an eight year period, this feels awfully light to me. Something along the lines of an amount equal to the 30% commission he got in 2012 for his illegal solicitations would be more appropriate, if only to ensure that he didn’t profit from breaking the law. If the fines for not following the rules cost less than the money you can make by being a scofflaw, then what’s the incentive to comply? If my kid steals three candy bars and I punish her by making her pay for one of them, I don’t think I’m sending the right message. There’s still a chance of federal enforcement, so perhaps Paxton hasn’t fully gotten away with it just yet.