Texas Attorney General Ken Paxton Indicted

Last Tuesday, a Texas grand jury indicted 52-year-old Texas Attorney General Ken Paxton on three counts of securities fraud. Paxton, sworn in on January 1, 2015, was previously a member of the Texas House of Representatives. The alleged illegal conduct arose while he was a member of the legislature and a private lawyer, and is connected to Paxton’s work soliciting clients and investors on behalf of two companies.

Yesterday morning, Paxton surrendered at the Collin County Jail to be booked. Bail was set at $35,000, and Paxton posted bond and was released. Paxton has been charged with two counts of securities fraud more than or equal to $100,000, a first-degree felony, and one count of failure to register with the state securities board as an investment advisor, a third-degree felony. In an ironic twist, as a state representative in 2003, Paxton voted in favor of changing Texas law to make it a felony for investment agents to fail to register. In Texas, a first-degree felony can result in 5 to 99 years in prison and a third-degree felony carries a possible range of punishment of 2 to 10 years.

The two counts of fraud Paxton committed according to the indictment occurred when Paxton sold more than $100,000 in stock to fellow Texas state representative Byron Cook and Florida businessman Joel Hochberg without revealing that he would make a profit from their investment. He also allegedly failed to disclose that he had already been compensated with 100,000 shares of the company and that he had not put any of his own money into the company. Commentators have already deemed these charges an “uphill battle” for the prosecution because fraudulent omission cases are more difficult to prove than fraudulent misrepresentation in securities cases: the facts will have to show that “information [Paxton] kept from clients during his time as an investment adviser was important enough to constitute a criminal omission.”

Last May, Paxton acknowledged the underlying conduct at issue for the third charge, failure to register, and admitted to the Texas State Securities Board that he had solicited clients for Mowery Capital Management (“MCM”) without abiding by the law requiring state registration. Paxton might have a harder time fighting this charge because of this admission. (As the New York Times has pointed out in yet another ironic twist, Paxton’s Attorney General website informs consumers that a “common theme of investment scammers” is that they are “not likely to be registered” with the Board.) The Texas State Securities Board disciplined him because he acted as an “investment advisor.” Paxton was reprimanded, paid a civil fine of $1,000, and called it an administrative error. The Texas State Securities Board order states that, “Respondent was compensated by MCM for each solicitation resulting in a client relationship with MCM. Specifically, MCM agreed to pay Respondent 30 percent of asset management fees collected by MCM from each client that Respondent solicited successfully.”

Despite the discipline action, the Texas State Securities Board did not refer Paxton for criminal charges. Texans for Public Justice, the same watchdog group that filed a complaint against former Texas Governor and current presidential candidate Rick Perry (who is currently still facing one felony count) deemed the Securities Board’s punishment insufficient and requested a criminal investigation. After the Travis County District Attorney referred the Paxton case to Collin County (where the alleged acts took place), Collin County District Attorney Greg Willis recused himself. Houston defense attorneys Brian Wice and Kent Schaffer were appointed as special prosecutors on the case, and a Texas Rangers investigation followed. Wice is well-known for representing former Republican House Majority Leader Tom DeLay, and securing a reversal of Delay’s conviction for violating Texas campaign-finance laws.

As the cases against now second-time Republican Presidential candidate Perry and former Majority Leader DeLay demonstrate, Texas politics can be hardball. In fact, Paxton has joined a long list of Texas politicians who have faced criminal charges. Our blog will keep you posted on the case.

Eric Holder to Resign: Who Will Be the Next Attorney General?

After serving 5 ½ years as Attorney General, Eric Holder will formally announce his resignation later today at the White House. In addition to being the first African American Attorney General in U.S. history, he ranks as the fourth-longest tenured AG in history and also one of the few remaining Cabinet members from the beginning of the Obama administration.

His successor will need to be confirmed, and this could take some time. So who will be chosen to replace him?

NPR is reporting that “sources say a leading candidate for that job is Solicitor General Don Verrilli, the administration’s top representative to the Supreme Court and a lawyer whose judgment and discretion are prized in both DOJ and the White House.” Verilli is currently the 46th Solicitor General of the United States. His official biography on the DOJ page states that:

Verrilli previously served as Deputy Counsel to President Obama and as an Associate Deputy Attorney General in the U.S. Department of Justice. Prior to his government service, he was a partner for many years in Jenner & Block, and co-chaired the firm’s Supreme Court practice. He handled numerous cases in the Supreme Court and the courts of appeals, including MGM Studios, Inc. v. Grokster, which established that companies building businesses based on the unauthorized distribution of copyrighted works can be liable for inducing infringement; and Wiggins v. Smith, which established principles governing the right to effective assistance of counsel at capital sentencing.

Verrilli maintained an active pro bono practice throughout his career in private practice, and received several awards for his efforts. He also taught First Amendment law as an adjunct professor at Georgetown University Law School from 1992 through 2008.

Verrilli received his undergraduate degree from Yale University and his J.D. from Columbia Law School, where he served as editor-in-chief of the Columbia Law Review. He served as a law clerk to the Honorable J. Skelly Wright of the United States Court of Appeals for the D.C. Circuit and to the Honorable William J. Brennan, Jr. of the United States Supreme Court.

Even assuming that the President taps Verilli to follow his old boss Holder, he may face an uphill battle from Senate Republicans. He is, after all, the man that NPR dubbed “the man behind the defense of Obama’s health law,” as having successfully argued the administration’s position for three days before the Supreme Court regarding the Patient Protection and Affordable Care Act.