Sen. Angela Paxton files bill that would allow her husband, Texas Attorney General Ken Paxton, to issue exemptions from securities regulations
A full editorial in the Houston Chronicle:
Dallas Morning News:
Billed as a consumer-protection effort, the proposal would allow approved individuals to serve as investment advisers without registering with the state board — a felony under Texas law that Ken Paxton was charged with in 2015.
Angela Paxton said the bill is geared toward strengthening consumer protections in the under-regulated, ever-changing financial tech industry — a sector that in Texas is largely centered in Richardson, part of her North Texas district. Constituents from that district first brought the issue to her attention, her office said.
“SB 860 allows for the growth and economic benefit of the emerging Financial Technology industry while the state provides the necessary regulatory framework and consumer protection in the marketplace,” she said in a statement to The Texas Tribune. “The state agencies that have regulatory oversight of financial institutions and consumer protection laws will provide appropriate regulatory support within the sandbox to ensure that consumers are protected.”
But skeptics pointed to the bill’s optics problem: Ken Paxton, a statewide official accused of violating state securities law, would be empowered to decide who can skirt state securities law. And he’d get that power from a bill authored by his wife. Currently, Texas law requires investment advisers to register with the state. Failing to do so is a third-degree felony punishable by a sentence of two to 10 years.
Ken Paxton was charged under that law in 2015, when prosecutors alleged he had failed to register with state securities regulators for soliciting clients for Mowery Capital Management in return for fees. That came in an indictment with two other, more serious securities fraud allegations.
The criminal charges have yet to be tested at a trial, but the Texas State Securities Board found in 2014 that Paxton had acted illegally as an unregistered securities adviser at least three times: in 2004, 2005 and 2012. When he was issued a $1,000 fine in 2014, Paxton signed the disciplinary order and did not dispute its findings. At the time, a spokesman dismissed the charge as “an administrative oversight.”
Ken Paxton’s office did not return requests for comment. He has long decried the pending criminal case against him as politically motivated and has denied wrongdoing. His criminal trial, delayed for years, is on hold as the Texas Court of Criminal Appeals considers a side battle related to the appropriate pay scale for his appointed prosecutors.
In 2016, Paxton was cleared of related civil charges brought by the U.S. Securities and Exchange Commission.
Currently, the Texas State Securities Board is charged with reviewing applicants who seek to become financial advisers or sell securities. Angela Paxton’s proposal would — for applicants approved by the agency her husband leads — circumvent that process, handing some approval power to the attorney general’s office, and would override any existing state law that conflicts with it.
Jens Dammann, a securities expert at the University of Texas School of Law, said Angela Paxton’s bill would open a “fairly aggressive exception” in state securities regulations at a time when the trend nationally is to regulate more, not less.
It would also take the approval process out of the hands of state securities specialists and put it in the hands of someone whose primary expertise is in enforcing the law, experts said.
“It gives an uncomfortable level of discretion to the attorney general,” Dammann said. “As the bill stands, he would have to make judgments about the innovativeness of financial products. That’s probably not his main focus.”
If SB 860 moved through both chambers of the Legislature and eventually became law, it would take effect Sept. 1. The proposal does not appear to offer any retroactive legal cover for past violations, and it’s not clear whether it would directly impact Ken Paxton’s pending criminal case, but a change in statute could prove persuasive to a jury.
Still, ethics experts were slack-jawed that such a proposal would come from the wife of the state’s attorney general — even if he weren’t under criminal indictment for a charge so closely related to the legislation.
Randall “Buck” Wood, a longtime ethics lawyer in Austin, said it would be “a real concern” for Angela Paxton to introduce any legislation related to the agency her husband leads. But a proposal that relates so closely to his personal criminal indictment is “beyond the pale,” he said.
“It sounds like one of the more blatantly unethical acts I’ve seen recently. That’s just ridiculous,” Wood said. “This particular situation, it seems to me, is definitely personal to her and probably to very few other people.”
The measure would “almost certainly” influence Ken Paxton’s criminal trial, added Wood, who has worked as a trial lawyer for decades.
To take advantage of the program, applicants would have to pay a fee and win approval from the attorney general’s office. Applicants would apply to the agency with an “innovative product or service” they hope to test for a limited time and on a limited basis. The agency would be required to report back to the Legislature biennially.
Last year, before Angela Paxton was elected to the Legislature, experts told The Texas Tribune that any misstep could constitute a major ethical violation. Even voting on the state’s biennial budget, which includes her husband’s salary, could raise eyebrows, some said.
In a March 2018 TV interview, she brushed off such concerns.
“They’re different branches of government … and Ken and I are pretty like-minded people, but we’re certainly not clones of each other,” Angela Paxton said. “All you have to do is watch us around the thermostat to see that we have our own opinions about some things.”
FOIA REQUEST BY FARKUS
Dear Ms. Farkus,
I have attached the emails that are responsive to your request as clarified by your email below.
I have only included one copy of duplicate emails that were sent by an Agency employee to another Agency employee. I have also included only one copy of the external email from Mr. Fahy (a member of the public), which was sent to two Agency employees, since the copies are identical.
Please note that Section 552.137(a) of the Public Information Act provides that an email address of a member of the public that is provided for the purpose of communicating electronically with a governmental body is confidential and not subject to disclosure under this Chapter. The Texas Attorney General issued Open Records Decision No. 684 (2009), a previous determination to all governmental bodies authorizing them to withhold an email address of a member of the public without the necessity of requesting an attorney general decision.
Therefore we have redacted from the attached emails all email addresses of members of the public, that are subject to Section 552.137(a).
Cheryn L. Netz
Assistant General Counsel
Texas State Securities Board
208 East 10th Street, 5th Floor (78701)
PO Box 13167
Austin Texas 78711-3167
“This is actually true – State Senator Angela Paxton filed a bill to take jurisdiction over some securities matters away from the Texas State Securities Board (as well as some consumer finance matters away from the Texas Finance Commission) and give control to her husband, the Texas Attorney General – a person with a bit of a checkered history on securities compliance matters. Moreover, the Dallas Morning News points out that the Texas Constitution bars lawmakers from voting on bills on which they have “a personal or private interest.” (but it is OK to spnsor?)”
– John R. Fahy, Securities Attorney, Dallas, TX
Special Prosecutors’ Pay Is Delaying Ken Paxton’s Trial On Securities Fraud Charges
A Houston Chronicle reporter says Paxton allies on the Collin County Commissioners Court ruled against paying the prosecutors’ $300 per hour rate. The lawyers may walk if the ruling stands.
A team of lawyers working to prosecute indicted Texas Attorney General Ken Paxton says their case is in jeopardy after a judge ruled last month the attorneys were getting paid too much. The team is asking for a court to reconsider the ruling.
Andrea Zelinski is a state bureau reporter for the Houston Chronicle, and says the charges against Paxton have been around for over three years but he’s yet to go to trial.
“Paxton is charged with two felony counts of securities fraud and then one other lesser charge for failing to register as a securities adviser,” Zelinski says.
Now, she says a judge in Collin County, where a grand jury indicted Paxton in 2016, doesn’t want to pay the three special prosecutors the $300 per hour the county originally agreed to pay them.
“They billed [the county] back in 2016, and they had been paid about $200,000. But then, when they billed again in 2017, the county said, ‘Hold the phone, we don’t want to pay this,’” Zelinksi says.
Zelinski says the prosecutors argue their fee is standard.
“This also has to cover their overhead costs … so it’s not just for this individual lawyer, there are other costs associated with that,” Zelinski says.
She says the primary criticism about the pay is coming from members of Collin County Commissioners Court, some of whom she says are Paxton allies.
“Several members on the Commissioners Court have been involved in fundraisers for Attorney General Paxton at one point or another,” Zelinski says. “To some extent, it’s Paxton country, I mean, this is where he’s from, this is where he’s made his name as a politician for years.”
She says the case against Paxton seems to be “unraveling.” She says the court’s ruling against the prosecutors was firm, though there were a few judges on the court who dissented.
“The special prosecutors are gonna have to have quite an argument to get the court to reconsider,” Zelinski says.
For now, the prosecutors are waiting to hear if the Texas Court of Criminal Appeals will hear the case. Zelinski says if that happens, then there will be another long waiting period for that court to make any decision. If the appeals court decides not to hear the case, then the decision goes to the Harris County judge currently assigned to Paxton’s case.
“[He’ll] have to set a new pay, which is gonna be limited … to $2,000 pretrial work, which, obviously, that’s a big difference,” Zelinski says.
She says the special prosecutors have hinted that they wouldn’t accept that fee. In that case, the judge would have to find a new prosecutor who would have to learn the ins and outs of Paxton’s case, including securities fraud laws.
“It could be a long time before Attorney General Paxton gets his day in court,” Zelinski says.