More on Paxton’s SEC troubles

The short answer is, he’s gonna lose.

Best mugshot ever

Best mugshot ever

Texas Attorney General Ken Paxton may have some history on his side, but as of this week the numbers appear to be against him.

Paxton, who is trying to become the latest in a long line of Texas officials to beat prominent allegations, unwittingly entered treacherous waters Monday when the federal Securities and Exchange Commission announced it had sued him for allegedly committing securities fraud, the same charge he is facing in a state district court.

Over the past two years, the SEC has won 95.9 percent of the cases not related to insider trading that it has taken to a federal courtroom, according to a new study from Stanford University’s Rock Center for Corporate Governance.

“If we were in Vegas making book, the odds would be that the attorney general is going to lose,” said Joseph Grundfest, a senior faculty member at the center and a former SEC commissioner.

Part of the reason for those odds is that the SEC does not make formal accusations until giving defendants a chance to argue in writing and in person why a case should not be filed – a process Paxton almost certainly exhausted before the commission moved forward, experts said.

The attorney general’s challenge is heightened by the fact that two of his co-defendants already have agreed to large financial settlements.


Although it has taken place more quietly, the SEC investigation has been going on for at least [as] long [as the state criminal investigation]. Its existence first was reported by the Associated Press in early last July.

Paul Coggins, a former federal prosecutor who now leads the white-collar criminal defense practice for the Dallas-based Locke Lord law firm, said the SEC process dictates that the agency long ago had to notify Paxton of its intent to file a lawsuit and offer him an opportunity to submit a brief and to argue in person that nothing should be filed.

The federal complaint filed Monday quotes Paxton defending himself, statements that may have been taken from a brief or from testimony.

During the SEC’s investigative process, two of Paxton’s co-defendants agreed to settle their cases by paying a combined $266,000, according to the federal government. Those settlements, by Servergy and former firm official Caleb White, were signed in mid-March, court records show.

White, who was accused of the same crime as Paxton but received one-fifth of the shares in the company, paid the SEC $66,000, suggesting Paxton could be on the hook for at least that much.

That could be a problem for Paxton, who already is spending heavily on a five-person defense team and faces legal barriers to raising money through donations.

In cases that were not settled, a 2015 analysis by the Wall Street Journal found, the SEC won 69 percent of cases litigated in federal courts from October 2010 through March 2015.

Grundfest, the Stanford professor, said the SEC’s win rate has improved recently. He also pointed out that the newspaper’s analysis included insider trading cases, which are much harder for the commission to win.

In insider trading cases, the agency loses about half the time. In cases unrelated to insider trading, the SEC almost always wins, the professor said.

See here for the background. As the story notes, this could be a precursor to federal criminal charges being filed. Even if that doesn’t happen, he’s going to lose this lawsuit. I feel a song coming on:

One way or another, this is not going to end well for Ken Paxton. If he deserved any sympathy, I’d feel it for him, but he doesn’t.

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