Texas attorney general charged with securities fraud

Jason Whitely and Tanya Eiserer | WFAA-TV, Dallas-Fort Worth

McKINNEY, Texas — Texas Attorney General Ken Paxton was booked Monday on three felony charges.

Paxton, 52, is charged with two first-degree felonies for securities fraud and a third-degree felony for failing to register with the state to sell securities.

The Republican surrendered at the Collin County Jail on Monday, where he was fingerprinted and photographed before being released on personal recognizance bonds. Bond was set at $35,000.

Paxton is accused of having defrauded two individuals of more than $100,000. He does not have to resign while he fights the charges. He can continue to work, just as Texas Gov. Rick Perry did after his two felony indictments in August 2014.

The securities fraud indictments 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 adviser, to whom Paxton referred clients without telling them that he'd been getting hefty commissions.

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

Paxton's security detail drove him in a black SUV into a garage at the jail and away from cameras. The attorney general was never seen.

The attorney general's mugshot was released shortly after he left, showing that he received some special treatment. When booked in the Collin County Jail, defendants usually have a white towel around their neck so the public cannot see what clothing they are wearing.

Special prosecutor Kent Schaffer first revealed 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."

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 email 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.

Other than the fact that he owns stock, Paxton's connection to Servergy is not clear.

If convicted, Paxton would lose his law license and have to step down as a top state official.

A judge from Tarrant County, Texas, already has been appointed to preside over the case. A trial is probably more than a year away.

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

In a statement issued Monday, the Republican Party of Texas called on Texans to allow Paxton to have his day in court.

“There’s a reason why Texans have warily observed this news. Some of the outrageous events surrounding this sloppy process certainly do not typify the level of quality that Texans expect from our judicial system," said Aaron Whitehead, the party's communications director. "Since being overwhelmingly elected by the voters of Texas, General Paxton has helped lock up child predators, investigated the odious acts of Planned Parenthood, relentlessly pushed back against an overreaching federal government, and we expect him to fight these allegations with that same zeal. Ken Paxton, like all Americans, deserves to have his say in a court of law, rather than be judged in a court of public opinion that is presided over by liberal interest groups.”

Contributing: Jim Douglas, WFAA-TV, Dallas-Fort Worth.