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Texas AG in Hot Water for Alleged Securities Fraud

By Katherine S. DiDonato, Esq.  of Shustak Reynolds & Partners, P.C. posted on Friday, August 7, 2015.

Kara Siegel

Kara Siegel

Senior Attorney

On Monday, Texas Attorney General Ken Paxton surrendered at the Collin County Jail and was charged with two first-degree felonies for securities fraud and a third-degree felony for failing to register with the state to sell securities.  Paxton joins several other high-ranking Texas politicians who were indicated while in office, including Tom DeLay (former House majority leader) and former Governor and current presidential candidate, Rick Perry.

Paxton’s third-degree felony charge for acting as an investment adviser representative without being registered with the state securities board stems from Paxton referring clients to investment adviser Fritz Mowery, Paxton’s friend and campaign donor, without telling them Paxton would be getting sizeable commissions for the referrals.  During his campaign, Paxton admitted to soliciting clients without the proper license and paid a $1,000 fine to the Texas State Securities Board.  Paxton then referred to his wrongdoing as an “administrative oversight.”  

This admission may now come back to haunt Paxton as the potential damages have been enhanced from a civil fine to a criminal prosecution that carries a maximum sentence of 10 years in prison. The irony is the offense Paxton was charged with was added to the Texas Securities Act in 2003–Paxton’s first session in the Texas House.  In recent years, FINRA, the SEC and other state securities regulators have been cracking down on the practice of sharing commissions with unlicensed individuals.   

The securities fraud indictments are related to Servergy Inc., a Dallas-area tech firm that has been under investigation by the Securities and Exchange Commission for allegedly making misleading statements about the company to induce investors to buy Servergy stock. Paxton’s two first-degree felonies allege that he defrauded two individuals of more than $100,000. The alleged fraudulent conduct occurred when Paxton was serving in the state Legislature.  State filings show Paxton owns at least 10,000 shares of Servergy.

The first-degree securities fraud indictments carry a potential penalty of up to 99 years in prison.  If convicted, Paxton would lose his law license and would have to step down as Attorney General. Paxton will continue to act as Texas Attorney General while defending the charges.  He is represented by Joe Kendall, a former Federal District Trial Court judge. 

Shustak Reynolds & Partners, P.C.’s  FINRA and SEC defense attorneys routinely represent individuals and corporations in SEC, FINRA and other securities regulatory proceedings.  Contact us today for a confidential analysis of your situation.

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