State Sen. Ken Paxton, the leading Republican candidate for attorney general, has launched an internal review of his disclosures to state regulatory authorities and the Texas Ethics Commission to determine whether he violated any laws by failing to report several business and professional relationships.
Paxton launched the review after The Texas Tribune obtained 2006 letters showing the McKinney lawmaker was being paid to solicit clients for a North Texas financial services firm at a time when he was not registered with the State Securities Board. Registration in such circumstances is typically required. Nor did Paxton ever reveal his solicitor work on the employment history section of his personal financial statements, which must be filed regularly with the Texas Ethics Commission.
Also missing from his ethics filings is any disclosure of his service on the boards of at least a half-dozen nonprofit corporations, the Tribune investigation found. Ethics laws require legislators to reveal service on corporate boards, including nonprofit ones.
This much is known from regulatory filings and the 2006 letters obtained by the Tribune: Paxton began working as a solicitor for companies run by his friend and business associate Frederick “Fritz” Mowery as far back as the summer of 2001. While Paxton has been associated with Mowery’s firm as a solicitor on and off for a decade or so, records show he was registered with the State Securities Board for a total of about two years.
Solicitor is the informal title for “investment adviser representative,” an official designation for people who refer investors — for a fee — to an investment adviser.
Records from the Securities Board show Paxton was registered once between July of 2003 and the end of 2004 for Mowery’s Oxford Advisors Corporation. He got registered again for Mowery Capital Management on Dec. 13 of last year, and that registration remains active.
Robert Elder, spokesman for the State Securities Board, confirmed that Paxton was not registered as a Texas investment adviser representative between Jan. 1, 2005, and mid-December of 2013. He said that he cannot discuss the hypothetical oversight of an individual solicitor or comment on whether Paxton should have been registered in other years.
The Texas Securities Act defines a solicitor, in part, as “each person or company who, for compensation, is employed, appointed, or authorized by an investment adviser to solicit clients for the investment adviser.” The law also says that unless a person is specifically exempted, he or she “may not act or render services as an investment adviser representative for a certain investment adviser in this state unless the person is registered.”
Paxton’s campaign has not said whether the senator believes state or federal securities laws required him to register when he was working as a solicitor. When asked specific questions, Holm, the campaign spokesman, referred to his written statement about the campaign’s promised review of Paxton’s disclosure obligations.
According to Elder, the Securities Board spokesman, penalties for acting as a solicitor while failing to register “can range from those administrative penalties to include suspension, up to revocations, to fines, and then things could move into, obviously, the criminal arena as well.”
“But it is all completely fact-specific,” he added, emphasizing that he was speaking in broad terms and not about any individual.
The facts in at least one case from 2006 demonstrate that Paxton was being paid at a time that he wasn’t registered with the state to do paid solicitor work.
The case involved two of Mowery’s customers — Teri and David Goettsche of Dallas. In a September 2006 letter, Mowery informed a concerned and apparently surprised Teri Goettsche that Paxton — whom she had previously retained as a lawyer on a separate matter — was being paid a 30 percent commission for referring her to Mowery’s investment firm.
“Mr. Paxton receives a percentage of Mowery Capital Management’s quarterly investment management fee for certain clients referred to us,” Mowery’s letter said. “This fee arrangement was a verbal arrangement between Mr. Paxton and us and therefore no documentation exists.”
Teri and David Goettsche later sued Mowery and Paxton, alleging that their actions helped lead the couple into a doomed real estate investment scheme with one of Mowery’s own business partners, who soon declared bankruptcy. David Goettsche entered into a separate investment arrangement with Mowery in 2005 and was later told in writing that Paxton was getting a 30 percent cut from his fees, too.
The Goettsches’ lawyer, John Sloan of Longview, said the couple lost hundreds of thousands of dollars in the failed land deal, and only found out about Paxton’s role when things started to go south in the summer of 2006. Teri Goettsche was referred to Mowery after hiring Paxton to prepare a post-nuptial agreement in 2003 and didn’t realize the lawyer-turned-politician was also getting paid as a solicitor, they said in the lawsuit.
According to state and federal court records, Mowery declared bankruptcy a little more than a month after David Goettsche and Mowery jointly signed a brokerage account agreement. Paxton received referral fees for David Goettsche as well, letters from Mowery indicate.
“They were shocked that this Paxton guy was getting a kickback. They just thought he was doing them a favor,” Sloan said. “He saw an opportunity for himself to profit and did.”
There’s more at the link, so go read the whole story. Paxton’s been an elected official since 2002 when he won a race for State House. You’d think a guy that wants to be Attorney General would have a better understanding of what the laws are in these cases, and you’d hope that such a person would have a better record of complying with the law. His runoff opponent, Rep. Dan Branch – who came under some pressure by fellow Republicans to drop out of the race since Paxton had a pretty big lead in March – is now making noise about this and calling on Paxton to drop out. Seems to me that if perhaps the campaign prior to March had included a bit more discussion of the candidates’ credentials and a bit less about guns, abortion, President Obama, and who loves or hates each in the proper amount, we might have had this discussion at a more opportune time for Rep. Branch. Oh, well. Whether any of this hurts Paxton for the runoff, or whether the faithful read it as just another attack by the liberal media remains to be seen. Consider this further evidence of the Republican statewide slate being woefully underqualified, and another reason to support Sam Houston now and in November. PDiddie and John Coby have more.