Sources: Grand jury indicts Attorney General Ken Paxton

Ken Paxton faces the fight of his life after being indicted on three felonies. Tanya Eiserer walks you through the case.

McKINNEY — The fight is on for Texas Attorney General Ken Paxton.

A grand jury has indicted Paxton on multiple felony charges, according to several sources who are familiar with the complaints.

The charges will be unsealed in McKinney at about noon on Monday, and a Tarrant County judge has already been appointed to preside over the case, sources told News 8.

After the indictments are unsealed, Paxton can surrender to be photographed, fingerprinted and booked at any of the state's 254 county jails.

Kent Schaffer, one of the special prosecutors, has previously told News 8 they planned to present a third-degree charge of failing to register with the state securities board, as the law requires. They also said they planned to present a first-degree felony charge against Paxton, accusing him of securities fraud.

Schaffer told The New York Times that Paxton has been indicted on two counts of first-degree felony securities fraud and one count of third-degree felony failure to register over his failure to register with the state securities board.

The securities fraud charges are related to Servergy, a McKinney-based company that has been under investigation by the Securities and Exchange Commission. The failure to register charge is connected to Paxton's friend and campaign donor Fritz Mowery, a McKinney investment advisor, to whom Paxton referred clients without telling them that he'd been getting hefty commissions.

Neither Schaffer nor his co-counsel, Brian Wice, would comment about the indictments to News 8.

Paxtons' legal team declined to comment Saturday, saying that the judge appointed to the case had asked both sides to "refrain from public comment on this matter."

Brian Wice and Kent Schaffer released the following statement Saturday:

"As defense attorneys, we have dedicated our careers to ensuring that every citizen accused of any crime is afforded the fundamental constitutional guarantees of the presumption of innocence, proof beyond a reasonable doubt, and a fair trial with a reliable result. Because our statutory mandate as special prosecutors is not to convict, but to see that justice is done, our commitment to these bedrock principles remains inviolate."

The first-degree securities fraud indictments carry a potential penalty of up 99 years in prison. The third-degree charge carries a maximum prison sentence of 10 years in prison.

Paxton was sworn in as attorney general on January 1. The indictments relate to alleged conduct that occurred while he was serving in the state legislature.

The path to Paxton's indictment began last May. That's when he was disciplined by the Texas State Securities Board after he admitted that he'd solicited clients for his friend's investment firm without being registered with the state, as the law requires.

According to the disciplinary order, Paxton acted as an "investment advisor" when he solicited clients on behalf of Mowery Capital Management, or MCM.

"Respondent was compensated by MCM for each solicitation resulting in a client relationship with MCM," the order said. "Specifically, MCM agreed to pay Respondent 30 percent of asset management fees collected by MCM from each client that Respondent solicited successfully."

Several clients have said they were not aware of the fee-sharing arrangement.

Paxton paid a $1,000 fine and called it an administrative error.

Paul Coggins, the former U.S. attorney for the Northern District of Texas, said that didn't absolve Paxton of potential criminal liabilities.

"First of all, the payment of the civil fine has nothing do with the criminal side," Coggins said. "There's always a civil avenue to go down, and you can resolve the civil avenue but it doesn't resolve the criminal.

"Paxton actually voted to make failing to register a felony so in a way he's being hoisted on his own petard."

Out of that came calls for a criminal investigation by the watchdog group Texans for Public Justice. That ultimately led to the appointment of the two special prosecutors and a Texas Rangers investigation.

Schaffer, one of the special prosecutors, first revealed to News 8 last month that the Texas Rangers had uncovered new evidence.

He said then that the securities fraud allegations involved losses in excess of $100,000, but Schaffer declined to reveal the specifics of them.

"The Rangers went out to investigate one thing, and they came back with information on something else," Schaffer said in early July. "It's turned into something different than when they started."

Schaffer told The Times that Paxton convinced a group of investors to invest more than $600,000 in Servergy in in 2011. Schaffer said Paxton failed to tell the investors -- which included State Rep. Byron Cook, R-Corsicana -- that he was getting a commission on the deal and falsely claimed that he was an investor in the company.

Those investors filed a lawsuit in 2013 against Servergy, demanding that the company open up its books for inspection. The suit accused Servergy of failing to comply with "multiple records to inspect the books and records of Servergy."

Terry Jacobson, an attorney representing Cook and the other investors, declined to comment on whether he or his clients had provided information to the Texas Rangers.

Coggins said that omission is going to be the fraud that prosecutors will try to sell as fraud to the jury. He said defense attorneys will have to deal with the issue of why Paxton didn't tell investors he was getting a commission.

"That might have affected whether they decided to invest or not," Coggins said.

Coggins said it will be tough to argue that it's a political vendetta, given that the wronged investors are fellow Republicans.

Bill Mapp, Servergy's founder, was seen at the Collin County courthouse on Tuesday – the same day that a grand jury was considering securities law violations against Paxton.

Paxton's state filings show he owns at least 10,000 shares of Servergy. His name also appears as a search term in SEC filings accusing Servergy of misleading investors. The filing also listed Paxton's e-mail address under "selected e-mails" of dozens of other contacts.

In those court records, filed in December 2014, the SEC said it was conducting an ongoing investigation into Servergy's "possibly fraudulent statements or omissions related to Servergy's technology and purported business relationships."

The filings accused Servergy of lying to investors about having pre-orders from companies, such as Amazon.

Paxton, 52, does not have to resign or step down from statewide office as he prepares to face a criminal trial. He can continue to work, just as Gov. Rick Perry did after his two felony indictments in August 2014.

Coggins says a key factor in the case will be whether what happened was a one-time occurrence or a pattern of conduct by Paxton.

"Juries are often quick to forgive people for paperwork mistakes, but if it's a recurring pattern, … that might be something the defense is really going to have to grapple with," Coggins said.

Paxton's case, legal experts predict, will go to trial since his law license and statewide office are now on the line.

"Given where he is in his early 50s, given the fact that he has the top legal position in the state, he probably figures, 'I'm fighting for my life. If I go down, I'm going to go down swinging,'' Coggins said.

Craig McDonald, director of Texans for Public Justice, said the organization is pleased with the grand jury's decision.

"We think the only reasonable reply to these indictments would be the attorney general's resignation," McDonald said. "I don't see how the top law enforcement official for the State of Texas can have any credibility for that job when he's under indictment."

That sentiment was echoed by Texas Democratic Party deputy executive director Manny Garcia.

"It's time for Paxton to face the consequences," Garcia said in a written statement issued Saturday afternoon. "This is yet another example of the corrupt culture that fester [sic] with one-party, unchecked Republican power."

Despite the criminal investigation, State Rep. Matt Krause (R-Fort Worth) said Paxton's Tea Party base still supports him.

"I think people are now quick to say, 'Hey let's see where this goes before we get too upset or enraged about it, and see what the facts really are, because maybe there's nothing to it and we don't want to dishonor or disown one of our own," he said. "Every now and then I'll text him saying, 'Praying for you. Hope you're doing well,' and he'll text back and say, 'I'm doing great. Thanks for the prayers."


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