"Texas attorney general charged with federal securities fraud" by Paul J. Weber and Jim Vertuno Associated Press April 12, 2016
AUSTIN, Texas — Federal securities regulators charged Texas Attorney General Ken Paxton Monday with four civil counts of fraud, piling on more legal troubles for the Republican already under criminal indictment for allegations that he deceived friends and wealthy investors — at least once with high-pressure tactics.
The lawsuit filed by the US Securities and Exchange Commission provoked new calls from critics that Paxton should resign but no public response from state Republican leaders, including Governor Greg Abbott.
Paxton, who has pleaded not guilty to two felony counts of securities fraud handed up by a Texas grand jury last summer, has said he won’t step down and has faced no public pressure from state leaders to do so. But questions about his private financial dealings have made for a tumultuous first 16 months on the job.
The new federal lawsuit essentially mirrors the charges in Paxton’s criminal case — that he defrauded investors in a high-tech startup called Servergy Inc. — but provides a far more detailed narrative of Paxton’s alleged misdeeds than what has previously been made public.
The SEC describes how Paxton allegedly betrayed a friend, raised $840,000, and pressured one investor to make a ‘‘hasty decision’’ to immediately invest, thereby increasing the value of Servergy stock that Paxton received as commission. Paxton’s investor recruiting took place in 2011, when he was still a state legislator.
SEC investigators say Paxton claimed he planned to invest $100,000 of his own money in Servergy but that company founder Bill Mapp refused. The lawsuit alleges Paxton said Mapp told him, ‘‘I can’t take your money. God doesn’t want me to take your money.’’ Paxton claimed he accepted Servergy shares as a gift, according to the lawsuit.
But both state prosecutors and now the SEC accuse Paxton of never telling investors Servergy paid him to raise money.
The investors wouldn’t have invested had they ‘‘known Paxton was being paid to promote the company,’’ the lawsuit reads.
Those same allegations led to Paxton’s indictment in his hometown, facing a possible sentence of five to 99 years in prison if convicted. By filing a civil lawsuit, federal regulators aren’t seeking prison time but instead want Paxton to pay back ‘‘any ill-gotten gains or unjust enrichment’’ and be ordered to pay additional financial penalties.
SEC investigators allege that one investor considered Paxton ‘‘a personal friend’’ and believed that Paxton was also investing in the company. According to the lawsuit, that investor ‘‘grew worried’’ when promises about product shipment failed to materialize, and that Paxton ‘‘did nothing’’ to determine whether those company milestones were true.
Paxton attorney Bill Mateja said he was surprised the SEC chose to file the charges a year after Paxton’s criminal indictment.
Not me; this bankrupt government is grabbing for all the loot it can get.
‘‘Like the criminal matter, Mr. Paxton vehemently denies the allegations in the civil lawsuit and looks forward to not only all of the facts coming out, but also to establishing his innocence in both the civil and criminal matters,’’ Mateja said.
The Texas Democratic Party, which hasn’t won a statewide office in more than two decades, said in a statement that ‘‘enough is enough’’ and again called for Paxton to step down. Paxton spokesman John Wittman declined comment on the new federal fraud charges against Paxton.
Paxton took office in January 2015 with strong Tea Party movement support. A year earlier, Texas Senator Ted Cruz, now a GOP presidential candidate, called him a ‘‘tireless conservative warrior’’ as Paxton trounced a moderate Republican challenger on the way to becoming Texas’ top law enforcement officer.
How ironic.
During a heated GOP primary race in 2014, Paxton admitted to breaking state securities laws by not disclosing how he received commissions for referring his private law clients to a financial planner. He paid a $1,000 fine, downplayed it as an oversight, and went on to handily beat an establishment Republican who counted former President George W. Bush as a supporter.
A Dallas state appeals court is scheduled to take up the criminal indictments next month.
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They finally got 'em!
UPDATE:
"Friends send big checks for top Texas prosecutor legal bills" Associated Press July 06, 2016
AUSTIN, Texas — Wealthy friends and donors of Texas Attorney General Ken Paxton have chipped in nearly $330,000 to cover his legal defense against criminal charges of securities fraud, according to state filings made public Tuesday.
The list reveals for the first time those paying for Paxton’s legal costs while the Republican fights two felony counts of defrauding wealthy investors in the tech startup Servergy Inc.
Paxton, who has pleaded not guilty, is also being sued by the US Securities and Exchange Commission in a separate court case over the same accusations — that he lured investors to Servergy, a data-storage company, without disclosing that he was being paid to recruit new backers.
Among those footing Paxton’s legal bill are Preferred Medical CEO James Webb, who pitched in $100,000 and is a longtime donor to the state’s top prosecutor. At least one is also a Servergy investor: Keresa Richardson, who gave $10,000 and told the Associated Press last year that Paxton was ‘‘the cleanest guy in the world’’ when asked about Paxton’s name being linked to a federal investigation.
Paxton until now had not disclosed how he is paying for a team of high-powered attorneys — which at times included a former federal judge and former federal prosecutor — since being indicted last summer. Earlier this year, state ethics regulators denied giving Paxton their blessing to let him tap political donors to cover the cost.
But Paxton cited an exemption to Texas bribery laws when listing two dozen legal supporters in a filing with the Texas Ethics Commission. The exemption allows gifts to public servants when there exists a ‘‘personal, professional, or business relationship’’ that is independent of the officeholder.
Paxton was indicted just six months into taking office in 2015 and is still a long way from potentially standing trial. He recently lost a second bid to have the case thrown out and could next seek a dismissal.
Many of Paxton’s legal supporters live in and around his hometown of McKinney.
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