Texas attorney general Ken Paxton to plead not guilty on fraud charges

Texas Attorney General Ken Paxton was indicted on three felony fraud charges stemming from an alleged investment scheme into the McKinney-based technology company Servergy, as well as his failure to register as an investment advisor representative with the state. less Texas Attorney General Ken Paxton was indicted on three felony fraud charges stemming from an alleged investment scheme into the McKinney-based technology company Servergy, as well as his failure to register as ... more Image 1 of / 29 Caption Close Texas attorney general Ken Paxton to plead not guilty on fraud charges 1 / 29 Back to Gallery

McKINNEY - Texas Attorney General Ken Paxton will plead not guilty to three felony charges related to alleged securities fraud, his attorney said late Monday afternoon.

Paxton was booked this morning at the Collin County jail on felony charges unsealed at noon accusing him 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, which as recently as December 2014 was being investigated for allegedly defrauding its stockholders by the U.S. Securities and Exchange Commission, the indictment documents added. These first-degree felony charges carry a minimum sentence of five to 99 years in prison.

Paxton's defense attorney, Joe Kendall, issued the following statement: "Attorney General Ken Paxton will plead not guilty to these accusations and he will demand a trial by jury. He is looking forward to the opportunity to tell his side of the story in the courtroom of Tarrant County Judge George Gallagher, who was appointed to the case after Judge Chris Oldner's recusal on July 29. Judge Gallagher has given instructions to make no further public comments or publicly speculate on events. Attorney General Paxton and I intend to comply with Judge Gallagher's instructions. In the meantime, the Attorney General is returning to Austin to focus on his work on behalf of the citizens of Texas."

In keeping with his long-time pattern of avoiding the media, Paxton entered the Collin County jail through an entrance inaccessible to the press and public, and did not make a statement after his booking at the county courthouse.

Dozens of reporters waited for Paxton, who did not appear. A handful of members of the public, mostly representing the Texas Democratic Party, held a small press conference calling for Paxton's resignation.

The scene marked a stark departure from Gov. Rick Perry's post-indictment booking last year, when Perry made a lengthy statement in front of the Travis County courthouse in front of throngs of supporters. Just one pro-Paxton supporter was spotted in McKinney on Monday, a middle aged woman standing on the sidelines and toting a Bible.

Paxton is the first sitting Texas attorney general indicted while in office since Jim Mattox was charged in 1983 with commercial bribery. He did not resign and was later acquitted.

Rep. Byron Cook, R-Corsicana, chair of the House State Affairs Committee, and south Florida businessman Joel Hochberg were the two complainants in the first-degree felony cases against Paxton. Terry Jacobson, Cook and Hochberg's attorney, declined comment on the indictments.

According to the documents, Cook alleges that beginning in mid-2011, the then-state senator representing McKinney received free stock from Servergy in exchange for convincing Cook to invest at least $100,000 in the company. Paxton failed to disclose that he had not personally invested any of his own money and that he was being compensated for attracting other investors, the indictments added.

The Hochberg indictment document makes the same claims, also stating he invested at least $100,000 in the company without knowing Paxton was allegedly benefitting from his investment without having made one himself.

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 complainants in this indictment were named as James and Freddie Henry.

Paxton was released from the jail Monday on a total of $35,000 in personal recognizance bonds, and he was allowed to wear a suit and tie in his mugshot instead of draping his shoulders in a white towel, which is usually required for all people booked in Collin County.

Paxton does not need to resign due to the indictment, and may retain his job through the legal process. Tarrant County Judge George Gallagher has been assigned to the case, which is expected to go to trial.

The state's two top Republican leaders on Monday broke their silence on Paxton's indictment, both urging against a rush to judgment as the state's top lawyer faces court.

"Everyone is entitled to due process under the law. As a former judge, I recognize this is the first step in a lengthy process and will respect that process as it moves forward," Abbott said hours after the indictment was made public in Collin County, in his first remarks on the case.

In a separate statement almost as brief as Abbott's, Lt. Gov. Dan Patrick echoed the sentiment.

"It is important to recognize that an indictment is not a conviction. Under our Constitution, every person is innocent until proven guilty," Patrick said. "I am confident our judicial system will weigh all the facts and applicable law with a blind eye for justice and Ken Paxton, like anyone else, will be afforded his day in court."

Both statements were far less forceful in their defense of Paxton than was the response from state officials after then-Gov. Rick Perry was indicted almost a year ago on felony charges for allegedly trying to force Travis County District Attorney Rosemary Lehmberg to resign, after she pleaded guilty to drunken driving and served jail time, by threatening to veto state funding for her public corruption unit. She refused, and Perry vetoed the funding.