Indictments hanging over Paxton, vote
Democratic rival says charges sap support for Republican incumbent.
Texas Attorney General Ken Paxton has almost $7.3 million to spend on his re-election campaign and solid support from conservatives who appreciate his work on behalf of abortion restrictions, gun rights and religious-based objections to gay marriage.
He’s also been under three felony indictments for 36 of the 44 months he’s been in office — a liability that is, not surprisingly, a major campaign theme of his Democratic opponent, Austin lawyer Justin Nelson.
Paxton’s name rarely passes Nelson’s lips without being preceded by the word “indicted,” a strategy that has its roots in the formative days of the Democrat’s campaign last fall, when he and his wife, Elizabeth, debated the wisdom of launching an extended, uphill election fight with two young children and a third on the way.
The deciding factor, Nelson said, was an internal poll that found a weakness to exploit, even by a first-time candidate hoping to be the first Democrat elected to statewide office since 1994.
The October survey of 500 likely voters found relatively soft 50 percent support for Paxton versus 43 percent not in sup
port of him — an advantage that disappeared when those voters were reminded that Paxton is
under indictment for three felonies linked to his private business dealings in 2011 and 2012.
“What we saw was that we
started out with a real shot,” Nelson told the Amer- ican-Statesman. “As soon as people found out that he was indicted, we actually took the lead.”
And it appears Nelson will be able to continue attack- ing Paxton over the indictments through Election Day.
All activity in Paxton’s criminal case has halted since late last year while the state’s highest criminal court con
siders a side issue — whether three court-appointed pros- ecutors can be paid for their work on the case.
After Collin County commissioners objected to the $300 hourly rate that a for
mer judge on the case negotiated with prosecutors, a lower court blocked the payments in August 2017, say
ing the fees exceed what is allowed under state law.
Prosecutors, who haven’t been paid in 2½ years, asked the Texas Court of Criminal Appeals to overturn the ruling, but the nine-judge court has yet to act, even though the final brief was filed in December. And with the appeals court’s summer break continuing through August, it is unlikely that a decision could come in time to schedule a trial before the Nov. 6 election.
In addition, if the court withholds their back pay, the prosecutors have said they would have to step aside, adding another delay.
Arrested, released
On Aug. 3, 2015, Paxton turned himself in to the Collin County Jail in his home- town of McKinney to be
arrested, fingerprinted, photographed and released 20 minutes later on bail. Shortly afterward, grand
jury indictments were made public that accused him of two first-degree felony counts of securities fraud for soliciting investors for
Servergy Inc. without disclosing that the McKinney tech company was paying him to do so. Paxton also was charged with a third-degree felony, failure to register as an investment adviser rep- resentative with state securities regulators.
In the three years since, the criminal case has been repeatedly delayed by fights between Paxton’s lawyers and prosecutors, includ- ing unsuccessful defense attempts to dismiss the charges and a successful bid by prosecutors to move the case out of McKinney, where
they said they could not get a fair trial.
With the election now 14 weeks away and no resolution in sight, the situation appears to favor Nelson, who says the indictments raise legitimate questions
about Paxton’s integrity and fairness.
“I think the contrast will be clear between myself and Mr. Paxton,” he said.
But the Democrat said the long-delayed trial has one obvious downside.
“I think it is a disadvantage for voters. These charges have been pending now for three years, and Texans deserve to know whether their attorney general is going to go to prison before the election,” Nelson said.
Securities fraud carries a maximum of 99 years in prison, while the failure to register charge can bring a 10-year term.
Paxton, who is under a judge’s gag order that blocks both sides from discussing the case, has said he is look-
ing forward to a trial, arguing that his actions were not illegal and accusing prosecutors of stretching the defi- nition of fraud beyond its legal meaning. A conserva- tive Christian, Paxton also blamed his legal trouble on political opponents, partic- ularly moderate Republi- cans in Collin County and the Legislature.
Matt Welch, Paxton’s campaign spokesman, said he expects the long-pend- ing charges to have minimal impact on the race to become state government’s top lawyer.
“Voters made up their minds about these charges and their veracity a long time ago. They’ve seen this mock- ery of the legal system go on for over three years,” Welch said. “And I think because similar charges brought by the SEC were twice thrown out of court by a federal judge who was appointed by (former President Barack) Obama that people begin to realize that there’s no ‘there’ there.”
Welch was referring to a 2016 U.S. Securities and Exchange Commission civil complaint that accused Paxton of fraud based on the same activity that led to his state criminal charge — his work on behalf of Servergy.
According to the SEC lawsuit, Paxton committed fraud when he “exploited personal and business relationships with prospective investors for profit,” plied them with misleading half-truths and failed to disclose that his stock tips were “bought and paid for” by Servergy.
But U.S. District Judge Amos Mazzant III tossed out the original lawsuit and, later, an amended complaint, ruling that federal securities law didn’t require Paxton to tell
potential investors about his deal with Servergy.
Details of the deal
Mazzant’s ruling had no effect on the state criminal charges against Paxton, but the SEC lawsuit provided far more detail about his work on behalf of Servergy than was included in the Collin County indictments.
According to the SEC, Servergy paid Paxton with
100,000 shares of the compa- ny’s stock, worth $1 a share, for his work in lining up $840,000 in investments — a sum that represented 32 percent of all Servergy investments in 2011.
Two of those investors were mentioned in the Collin County indictments — state Rep. Byron Cook, R-Corsi- cana, and Florida businessman Joel Hochberg, both of whom belonged to an investment club that included Paxton. Cook and Paxton started out as friends but broke politically, most visibly when Paxton, then a state legislator, launched a short-lived attempt to oust Cook’s ally, state Rep. Joe Straus, R-San Antonio, as House speaker.
According to the SEC lawsuit:
■ Cook brought Paxton into the investment club several years before the Servergy deal, telling him that members take the same risks and receive the same benefits on every investment, “and that no one member makes money or otherwise benefits off of the investment of another member.”
■ In a July 12, 2011, meet- ing in Paxton’s McKinney law office and in follow-up emails, Servergy founder
and then-Chairman William Mapp III offered to pay Paxton a commission for investors he recruited.
■ Paxton approached Cook one day later to tout
Servergy as an investment. Paxton set up, and attended, a meeting with Mapp, Cook and other investors about a week later. Paxton also solicited friends, business asso- ciates and law firm clients.
■ Paxton did not tell investors that he was working on behalf of Servergy and, in 2014, ignored two letters sent by members of the investment club seeking informa- tion about his arrangement with the company.
The SEC accused Paxton of trying to hide the transaction, telling securi- ties investigators that the Servergy shares were a gift from Mapp and failing to list the Servergy stock as a source of income or a gift on the personal financial state- ment he was required to file with the state.
The SEC also accused Mapp of fraud by falsely claiming that Servergy had
several contracts to sell a revolutionary new server that was, in reality, based on outdated technology. However, a federal court jury cleared Mapp of three fraud charges last year, convicting him on one count of negligence.
‘It’s up to the people’
For Paxton supporters, the Mapp verdict is further proof that the case against him is flimsy. When Texas voters are presented all the details, Welch said, he expects most to support the Republican candidate who successfully challenged several Obama administration regulations in court and who has a “great relationship with the current White House.”
“Voters are looking for something more than a sound bite from a crafty trial lawyer,” Welch said.
Nelson, a partner in the Susman Godfrey law firm who specializes in complex civil litigation, said he’s com- fortable with a campaign focused on integrity, not only by highlighting the indictments but by criticizing Paxton’s efforts to overturn the Affordable Care Act, defend “gerrymandered” state political maps and remove deportation protections for young immigrants brought to the United States as children.
Voters appear to be responding, Nelson said, pointing to a University of Texas/Texas Tribune poll in June that showed Paxton with a slim lead of 1 percentage point. Nelson also has raised more than $750,000 since January, more than any other Democrat running for state office, and has $1.1 million in the bank.
“Ultimately, it’s up to the people of Texas to decide whether they want someone who has been criminally charged by a grand jury and faces years in prison to serve as their Texas attorney general,” he said.
But it appears, at least for now, that voters will have to make up their minds without knowing how the crimi
nal case against Paxton will turn out and without hearing the evidence presented in court.