In what state Sen. Angela Paxton describes as an effort to safely expand Texas’ burgeoning financial tech industry, the freshman Republican from McKinney has filed a bill that would empower the office of her husband, Attorney General Ken Paxton, to exempt entrepreneurs from certain state regulations so they can market “innovative financial products or services.”
One of those exemptions would be working as an “investment adviser” without registering with the state board. Currently, doing so is a felony in Texas — one for which Ken Paxton was issued a civil penalty in 2014 and criminally charged in 2015.
Senate Bill 860, filed Friday, would create within the attorney general’s office an entirely new program — what the bill calls a “regulatory sandbox” — that would allow approved individuals “limited access to the market … without obtaining a license, registration, or other regulatory authorization.” The bill, based on a 2018 Arizona law hailed as the first of its kind, aims to cut red tape for the growing financial tech sector, allowing businesses to market new products for up to two years and to as many as 10,000 customers with scant regulation.
In doing so, the bill would grant broad powers to the attorney general’s consumer protection division, allowing it to accept or reject entrepreneurial applicants who seek to hawk innovative products outside of the state’s current standards and regulations.
Angela Paxton said the bill is geared toward strengthening consumer protections in the underregulated, ever-changing financial tech industry — a sector that in Texas is largely centered in Richardson, part of her North Texas district. Constituents from that district first brought the issue to her attention, her office said.
“SB 860 allows for the growth and economic benefit of the emerging Financial Technology industry while the state provides the necessary regulatory framework and consumer protection in the marketplace,” she said in a statement to The Texas Tribune. “The state agencies that have regulatory oversight of financial institutions and consumer protection laws will provide appropriate regulatory support within the sandbox to ensure that consumers are protected.”
But skeptics pointed to the bill’s optics problem: Ken Paxton, a statewide official accused of violating state securities law, would be empowered to decide who can skirt state securities law. And he’d get that power from a bill authored by his wife. Currently, Texas law requires investment advisers to register with the state — failing to do so is a third-degree felony punishable by a sentence of two to 10 years.
If SB 860 moved through both chambers of the Legislature and eventually became law, it would take effect Sept. 1. The proposal does not appear to offer any retroactive legal cover for past violations and it’s not clear whether it would directly impact Ken Paxton’s pending criminal case, though a change in statute could prove persuasive to a jury.
Still, ethics experts were slack-jawed that such a proposal would come from the wife of the state’s attorney general — even if he weren’t under criminal indictment for a charge so closely related to the legislation.
Randall “Buck” Wood, a longtime ethics lawyer in Austin, said it would be “a real concern” for Angela Paxton to introduce any legislation related to the agency her husband leads. But a proposal that relates so closely to his personal criminal indictment is “beyond the pale,” he said.
“It sounds like one of the more blatantly unethical acts I’ve seen recently. That’s just ridiculous,” Wood said. “This particular situation, it seems to me, is definitely personal to her and probably to very few other people.”
The measure would “almost certainly” influence Paxton’s criminal trial, added Wood, who has worked as a trial lawyer for decades.
Sometimes I think about the crazy things we have seen in our politics over the past couple of years, and of the players who have been responsible for them, and I realize that if any of this had been the plot and characters of a fictionalized drama, no one would buy any of it. It would be too ridiculous, too over-the-top, too unbelievable. And yet here we are, soaking in it in real life. How exactly did we get here? I don’t really have a point to make here. I just know that if I had suggested before last year’s election that Angela Paxton would file a bill to make what her husband had been arrested for doing legal, a large number of sober-minded people would have accused me of being somewhere between melodramatic and paranoid. I hope someday to live in a world where those accusations would have had merit.