Wary of letting his future be determined by legal roulette, Ken Paxton squashed a festering campaign problem by admitting he broke securities law. He paid a minor $1,000 fine and buried the matter en route to becoming Texas attorney general.

Wary of letting his future be determined by legal roulette, Ken Paxton squashed a festering campaign problem by admitting he broke securities law. He paid a minor $1,000 fine and buried the matter en route to becoming Texas attorney general.

Or so he thought.

More than a year later, Paxton’s wheel of fortune is spinning again, but now, a criminal grand jury is in control.

The Republican’s admission that he solicited investment clients without the proper license has morphed into a legal and political battle that could result in felony charges, a forfeiture of his office and time in prison.

A Collin County grand jury is expected to weigh evidence brought by two temporary district attorneys assigned to the case. Paxton’s advisers are furiously preparing for a criminal indictment.

The looming showdown has the camps bickering. Anthony Holm, a spokesman for Paxton, contends the AG should not face criminal prosecution.

"As we’ve said for 14 months now, there was no criminal action because there was no crime," Holm said. "This was solely a civil event with a $1,000 civil penalty."

Holm took aim at the special prosecutors assigned to the case, calling Houston lawyers Kent Schaffer and Brian Wice lawyers "whose careers are built on defending the sort of child molesters and Mexican drug cartel leaders that Attorney General Paxton was elected to prosecute."

Holm also accused a local lawyer who provided information about Paxton to a previous grand jury as having a vendetta.

"The Collin County situation is a drastic departure from objectivity, legal precedent or common sense, and it’s time for people to understand a respected public official is the target of a political vendetta," Holm said. "This witch hunt must end."

In a written statement, Schaffer and Wice fired back, saying their investigation was "neither a political vendetta nor a witch hunt."

"The PR shell game Mr. Paxton’s hired gun employs once again seeks to change the conversation from his client’s conduct to personal attacks on us," they wrote. "He knows full well that we were appointed by a Republican judge in one of the most conservative counties in Texas to conduct a full, fair and impartial investigation, and that is exactly what we intend to do."

Paxton’s legal problems highlight the high-wire act that has been his business and political career. Since joining the House in 2003, the estate planning lawyer has grown a portfolio of almost 30 business interests, including complicated deals involving land swaps and property development. He’s pledged to sweep his business interests into a blind trust but has not verified whether the process is complete.

It’s his dabbling into investment referrals that got him in the most trouble.

Lacking proper license

In spring 2014, Paxton was the front-runner in the Republican race for attorney general, galvanizing tea party support to surge past former Rep. Dan Branch of Dallas and former Railroad Commission Chairman Barry Smitherman.

But after the Texas Tribune approached Paxton about his solicitation of investment clients, he sought to blunt Branch’s contention that the revelations made him unfit to serve.

In May 2014, Paxton admitted to steering clients to a friend’s investment firm without being properly licensed.

The state board fined and reprimanded him for improperly soliciting business in 2004, 2005 and 2012, when he was in the Legislature.

Paxton worked in the same building as Frederick "Fritz" Mowery, the head of McKinney-based Mowery Capital Management.

Records obtained by The Dallas Morning News show Paxton earned thousands of dollars by referring his private clients to Mowery, who is now accused of "unethical and fraudulent conduct" by the state.

Paxton referred at least six of his law clients to Mowery for financial advice. He contends that the failure to register as a securities agent was an innocent lapse.

"We resolved the issue in the spring," Paxton told The News on several occasions. "They have been saying that [indictment was possible] ever since. That’s something we took care of in the spring."

But prosecutors now say that at the least, there’s evidence that Paxton violated securities law by not registering with the securities board, a third-degree felony. And Schaffer has said he’ll ask for a first-degree felony indictment, though he won’t elaborate on the charge.

The prosecutors could submit evidence of the securities law violation that Paxton admitted to as a slam dunk case. But at least one legal expert says few people are criminally prosecuted for such offenses.

The state securities board did not refer the case for criminal prosecution.

"It’s technically a violation, but you don’t often see that type of violation charged criminally," said Dallas lawyer Jeff Ansley, a former Assistant U.S. Attorney for the Northern District of Texas and a former Enforcement Attorney for the U.S. Securities and Exchange Commission. "That’s very rare."

‘What else is out there?’

So the key question remains: What’s the evidence of a first-degree felony?

A Collin County judge allowed the Texas Rangers and the special prosecutors to expand their investigation beyond the original scope.

Schaffer said there is evidence that Paxton criminally broke securities laws in an incident involving more than $100,000. That total, and the potential of some type of fraud, could have been part of the investigation.

"That’s the thing that Paxton has to be increasingly worried about," said Rice University political scientist Mark Jones. "What else is out there?"

Jones said that if it’s a major charge, Paxton’s political future could be immediately endangered.

"The more that comes out, the more untenable Paxton’s position is going to be," he said.

Taking the initiative

That Paxton is in legal trouble can be attributed in part to the efforts of a watchdog group, and the determination of a local lawyer.

The public integrity unit within the Travis County district attorney’s office said it lacked jurisdiction and forwarded information to Dallas and Collin counties for lack of jurisdiction. Dallas County District Attorney Susan Hawk didn’t touch the case either, saying she was not aware of any alleged crimes being committed in the county.

That left Collin County, where Paxton’s friend and business partner, Greg Willis, is district attorney.

After receiving a complaint from Texans for Public Justice, Willis stepped aside and said that "appropriate investigation agencies, including the Texas Rangers," should handle the allegations against Paxton.

"As soon as we saw what he signed with the State Securities Board, it was obvious that he was admitting to felony conduct," said Craig McDonald, executive director for Texans for Public Justice. "If Greg Willis hadn’t stepped aside, this thing would have died."

Meanwhile, Dallas lawyer and blogger Ty Clevenger took the extraordinary step of sending information about Paxton to members of a Collin County grand jury, including three from the same church. He said he also dropped off information to a grand jury member’s home. He got their names from Collin County officials by asking; in Dallas, Hawk declined to release the grand jury’s names.

Clevenger’s interaction with grand jurors has riled Paxton’s team.

"It’s appalling to learn an activist secured the names of grand jury members, then showed up at some of their homes and offices lobbying them to launch their own" investigation, spokesman Holm said.

Clevenger defended his efforts, saying he delivered information but "never spoke face to face" to jurors.

"It’s another example of Anthony Holm not knowing what he’s talking about," Clevenger said.

That grand jury disbanded without considering the investigation of Paxton. But a new one is considering Paxton’s fate, and charges could come in a matter of weeks.

"In the end, he got it out of the way as a campaign issue, but in doing so he admitted to what many believe is a felony," said Jones, the political analyst. "For a private citizen, an administrative fine would likely have been where it ended. The reality is Ken Paxton is not just any Texan. He’s our attorney general."

Follow Gromer Jeffers Jr. on Twitter at @gromerjeffers.


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