Sources: Attorney General Ken Paxton indicted

Here are some hard numbers on Texas Attorney General Ken Paxton. Here are some hard numbers on Texas Attorney General Ken Paxton. Image 1 of / 15 Caption Close Sources: Attorney General Ken Paxton indicted 1 / 15 Back to Gallery

AUSTIN – Attorney General Ken Paxton is expected to surrender to authorities Monday following an indictment on multiple felony charges stemming from his involvement with a North Texas technology company accused of defrauding investors, according to multiple sources close to the case.

A Collin County grand jury issued the indictment against the first-term attorney general on Tuesday, two sources who had been briefed on the proceedings told the Chronicle on Saturday.

Paxton faces two counts of first-degree securities fraud and one count of third-degree securities fraud, with the most serious charges carrying a minimum sentence of five years in prison, special prosecutor Kent Schaffer told The New York Times.

Schaffer said Paxton is accused of encouraging people, including current and former members of the Legislature, to invest more than $600,000 in a McKinney-based technology company called Servergy without telling them he was making a commission. He also misrepresented himself as an investor in the company that the U.S. Securities and Exchange Commission was investigating for defrauding stockholders as recently as December 2014. The first-degree charges each carry a sentence of five to 99 years in prison and a fine of not more than $10,000.

The third-degree charge stems from his failure to properly register with the state as an investment adviser representative, which carries a sentence of two to 10 years in prison, as well as a $10,000 fine.

The indictment was immediately sealed Tuesday, but will be unsealed Monday afternoon, according to a high-ranking source with the Texas Department of Public Safety who asked not to be identified. Local media reported a Tarrant County judge already has been named to preside over the case, which is expected to go to trial.

Paxton's spokesman on Saturday did not answer multiple calls, texts and emails requesting comment. The charges involve actions Paxton is accused of taking before he was elected attorney general last fall.

Calls for Paxton's resignation surfaced almost immediately after the indictment news broke Saturday afternoon. Craig McDonald, executive director of the Austin-based advocacy group Texans for Public Justice, said the only appropriate response would be for Paxton to step aside.

"How can you have faith in the Texas legal system if its top official remains in office while under indictment for felony securities fraud? That shouldn't be able to happen," said McDonald, whose group filed an early criminal complaint against Paxton.

Calls and emails to the Texas Republican Party and office of Gov. Greg Abbott were not returned.

Paxton was not without supporters, however, with fellow tea party favorite Rep. Matt Schaefer, R-Tyler, likening the indictment to that of former Gov. Rick Perry. Perry, now seeking the Republic nomination for president, has repeatedly called his own indictment a partisan attack. Tony McDonald, counsel for the conservative advocacy group Empower Texans, called the indictments "politically charged attacks" in a post on the group's website.

State law does not require Paxton to step down due to the indictment. Like Perry, who was indicted during his final months in office, Paxton could retain his job as the legal process continues.

Jim Henson, head of the Texas Politics Project at the University of Texas at Austin, said a number of factors will influence if and how Paxton leaves the position.

"It's going to be a little harder to sustain the argument that this was a politically motivated persecution over time," Henson said. "But my suspicion is that we will not see the attorney general going particularly quietly into the night."

The Chronicle could not reach Schaffer Saturday, and co-special prosecutor Brian Wice declined comment on the indictment reports.

"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," Wice said in a statement. "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."

Paxton's criminal case dates to April 2014, when the then-state senator admitted to soliciting clients for his friend Frederick "Fritz" Mowery's investment firm without being properly registered with the state as an investment adviser representative.

That occurred at least three times during his dozen years in the state House and Senate, Paxton admitted. He was fined $1,000 and officially reprimanded solely for the final instance because the statute of limitations had expired for the first two cases.

Soon after, Texans for Public Justice filed a criminal complaint against Paxton with Travis County prosecutors. The case was put on hold until after the 2014 election, when Paxton sailed to an easy win in the race for attorney general. In January, Travis County prosecutors kicked the case to

Paxton's home county in North Texas, where they said the offenses likely took place.

Months later, Collin County District Attorney Greg Willis recused himself, citing his close personal and business relationship with Paxton, and referred it to the Texas Rangers. It was only then that the investigation was broadened into any and all possible securities act violations, after the Texas Rangers uncovered evidence of wrongdoing in addition that to which Paxton admitted in April 2014.

Paxton became involved with Servergy soon after Bill Mapp, a Paxton donor and tea party member in McKinney, took over at its helm. Paxton still holds at least 10,000 shares of Servergy stock, according to financial documents covering last year, and also used to name the company on his "business entities" list.

The SEC began investigating the McKinney-based company in 2013, saying it allegedly defrauded its stockholders by misrepresenting orders it had received for the Cleantech-1000, a server it said would consume up to 80 percent less power and space compared to others on the market.

The SEC took Servergy to court in 2014 to force its leaders to produce documents responsive to multiple subpoenas. That case was eventually settled when Servergy produced the information requested.

Rep. Byron Cook, R-Corsicana and former state Rep. Bob Griggs, both Servergy investors, also sued the company in 2014 for similar documents. That case also was settled, and Cook, who heads the House State Affairs Committee, remains an investor. Terry Jacobson, a Corsicana attorney who counts Cook and Griggs among his clients, declined to comment Saturday on the indictment.

Mapp no longer heads the company but remains an investor, said Miranda Sevcik, spokesperson for current Servergy CEO Lance Smith. While it did take the company longer than expected, she said, it eventually produced the server to the specifications promised investors.

"They are currently using it to provide tech solutions in a cloud that secures and stores data," Sevcik said. "They are generating revenue on this and creating value for their shareholders."

Paxton is the first sitting attorney general to be indicted in more than 30 years. In 1983, a Travis County grand jury indicted then-Attorney General Jim Mattox, a Democrat, for commercial bribery. Mattox defeated the indictment and was re-elected to the post in 1986.

Staff writer Mike Ward and Jim Pinkerton contributed to this report, which contains material from The New York Times.