When I profiled Attorney General Ken Paxton last year for Texas Monthly, I intentionally avoided writing about the details of the securities fraud cases against him as much as possible. The story was more about Paxton’s performance as attorney general. However, with a federal judge this week throwing out the U.S. Securities and Exchange Commission lawsuit against Paxton and a criminal fraud trial scheduled to begin on May 1, this seems like a good time to do a roundup of the coverage of his case so far. This is a story in two parts.
PART ONE: The Allegations
As so many political scandals do, the Paxton case became public during a campaign. While Paxton was running for AG in 2014, the Texas Tribune’s Jay Root reported that Paxton had been receiving management fees from a company called Mowery Capital Management without registering as a securities broker:
Teri and David Goettsche later sued Mowery and Paxton, alleging that their actions helped lead the couple into a doomed real estate investment scheme with one of Mowery’s own business partners, who soon declared bankruptcy. David Goettsche entered into a separate investment arrangement with Mowery in 2005 and was later told in writing that Paxton was getting a 30 percent cut from his fees, too.
The Goettsches’ lawyer, John Sloan of Longview, said the couple lost hundreds of thousands of dollars in the failed land deal, and only found out about Paxton’s role when things started to go south in the summer of 2006. Teri Goettsche was referred to Mowery after hiring Paxton to prepare a post-nuptial agreement in 2003 and didn’t realize the lawyer-turned-politician was also getting paid as a solicitor, they said in the lawsuit.
Paxton attempted to put the controversy behind him by signing an agreed-to order with the Texas State Securities Board that accused him of acting as “an investment adviser representative” for Mowery without registering. The board issued a reprimand and a $1,000 fine against Paxton.
When a Collin County grand jury returned a third-degree felony indictment against Paxton in August 2015, it accused him of acting as an investment adviser without registering or disclosing it to his clients, James and Freddie Henry. If convicted, Paxton could face two to ten years in prison and the loss of his law license. The state securities board document is pivotal in this case.
Many times in administrative proceedings such as this, a person signs a document agreeing to the punishment with a line included that their signature is not an admission of guilt. The document Paxton signed did not include such a disclaimer, so it is a critical piece of evidence for prosecutors and a hurdle for Paxton’s defense team to prove his failure to register with the securities board was an administrative error and not the result of criminal intent. At a court hearing last month, special prosecutors in the case said they plan to try Paxton first on the failure to register charge and leave more serious fraud charges to a later second trial. If prosecutors win this case, it gives them leverage in negotiating a plea deal on the other charges. For instance, Paxton might agree to a plea that would involve him resigning from office to avoid a prison sentence. If prosecutors lose this round, success on the more complicated charges would seem less likely.
The more complex case involves Paxton’s role in convincing fellow legislator and Corsicana Republican Byron Cook and a South Texas investor named Joel Hochberg to each buy $100,000 in stock in a high tech company called Servergy, without disclosing that he was receiving Servergy stock as an incentive. A Collin County grand jury returned two first-degree felony charges against Paxton, and he faces five to ninety-nine years in prison if convicted, though first time offenders usually receive probation. Paxton has claimed the charges are politically motivated because as a Texas House member he opposed the re-election of Joe Straus as speaker. The Texas Court of Criminal Appeals refused to dismiss the indictments before trial.
PART TWO: The Lawyer Wars
In the tangled mess that has been the Paxton case, his long-time friend and business associate, Collin County District Attorney Greg Willis, in 2015 recused himself from the case. A state district judge then appointed Houston lawyers Brian Wice and Kent Schaffer as special prosecutors. A third attorney, Nicole DeBorde, later was added to the team.
As much as Paxton’s defense has been about the legal issues, his supporters have banded together in an effort to undermine the credibility of the prosecutors. Phase one has been to cut off their funding from the Collin County Commissioner’s Court, and they scored a victory when the Texas 5th Court of Appeals in January temporarily halted the payments because of a taxpayer lawsuit. The prosecutors had submitted a bill to the county for $205,000.
Paxton’s backers received a public relations gift from federal prosecutors in December in a separate Houston case when prosecutors filed papers asking to have Schaffer removed as the attorney for the former head of the Bandidos Motorcycle Club, claiming Schaffer was an “unidentified co-conspirator” in the racketeering case. “I am incredibly flattered at their latest filing; obviously this prosecutor is afraid to try the case against me,” Schaffer told the Houston Chronicle. “They do just want me off the case.”
Closer to the Paxton case, former Houston television reporter turned private investigator Wayne Dolcefino leaked the Texas Rangers investigation of Paxton to the libertarian-leaning Watchdog news organization. Though he had worked for the Paxton defense team, Dolcefino testified in court that he was not paid to leak the document and believed it was a public record. “I did what I did, and I didn’t get paid for it,” Dolcefino said. The Watchdog report was generally favorable to Paxton, and portrayed the Servergy investors as savvy enough to understand Paxton probably was making money off of the investments:
Yet that’s the linchpin of the state criminal case. “Hochberg recalled Paxton making statements such as (sic) Servergy was a good deal, don’t let it go, I suggest you don’t delay and you need to invest now,” the Ranger investigator wrote.
Did Paxton tell him he was investing?
“Hochberg said he believed Paxton was involved in the Servergy investment due to his knowledge of the company,” the investigator wrote.
Cook, who used to be Paxton’s friend when he was in the state legislature, says he also thought Paxton was investing, “based upon past business ventures with Paxton not on any direct statements made by Paxton,” according to the investigation.
Cook said he invested because he believed a larger tech company would buy the company within three to five years, but also said he wouldn’t have invested if he’d known Paxton was getting shares in Servergy.
The prosecutors in court filings claim Watchdog is “another adjunct of Team Paxton” with “close ties to Tim Dunn, a Midland oilman and a noted Paxton supporter.” In November and December 2016, the prosecutors said, Watchdog ran two commercials on WBAP-AM attacking the Collin County payments to prosecutors, and the integrity of Cook and Hochberg. The prosecutors claimed the ads were meant to taint the jury pool in North Texas, and they implied that Dunn had paid for them. Judge George Gallagher ruled that he wants to at least try to seat a jury in Collin County before moving the trial elsewhere.
That brings us to the federal Securities and Exchange civil fraud case against Paxton that was thrown out for a second time this week. The federal lawyers wanted to bring a case against Paxton based on the Servergy investments and similar to the state prosecution. To hype its case, the SEC claimed in a news release that it had “charged” Paxton with fraud. The crusty old city editor in me wanted to say: You charge people in a criminal case, you accuse them in a civil case. More than one reporter took the bait and wrote a story that Paxton had been “charged.” However, U.S. District Judge Amos Mazzant dismissed the case “with prejudice”—meaning it can’t be filed again—on the grounds that what Paxton did or did not do simply is not a matter of federal law. “The question before the court is not whether Paxton should have disclosed his compensation arrangement but whether Paxton had a legal duty under federal securities law to disclose. As alleged, Paxton’s conduct simply does not give rise to liability under the federal securities laws as they exist today.”
The right-leaning website Breitbart was quick to point out that the judge was an appointee of former President Obama, while the liberal Dallas Observer’s online headline was Paxton Beats SEC Claim.
That ends my guided tour of the Ken Paxton case. A lot more information is contained in the links. The next stop for Paxton appears to be the start of jury selection on May 1.
ODDS AND ENDS
When I knew Bush as governor, he was pretty thin-skinned when someone else teased him, but he was pretty good at getting a laugh at his own expense. And he did that this week with TV host Jimmy Kimmel.
By Brandi Grissom
The Dallas Morning News
The ACLU opposes a convention to amend the U.S. Constitution. Even the conservative Eagle Forum has come out against the Convention of the States, because there’s no real way to limit the actions of such a convention—except for the fact thirteen states can block an amendment proposed by such a convention. Some conservatives, such as Governor Greg Abbott, say amending the Constitution is the only way to shift power away from the federal government and back to the states. Brandi Grissom of the Morning News found that the debate is not just philosophical. There’s some real money pushing it:
“The governor is trying to carve off a kind of conservative policy he can call his own,” said Brandon Rottinghaus, a University of Houston political science professor.
Those suppositions may hold water. But experts say for the first time in decades, the convention of states movement may stand a remote chance of becoming reality thanks, in part, to the support of mega-rich conservative donors who have given millions to Abbott and other Texas Republicans.
By Fox News
Perry’s failure to remember during a 2011 GOP presidential primary debate that he wanted to eliminate the Energy Department sank his presidential prospects that cycle, but did not factor heavily into his confirmation process.
“My past statements made over five years ago about abolishing the Department of Energy do not reflect my current thinking,” Perry said in January during his Senate hearing.
As Perry moves into the job, keep an eye on that nuclear waste dump in Andrews County.