Ken Paxton Might Get Money From Cutouts

FORT WORTH (CN) - The Texas Ethics Commission may approve guidance for indicted Attorney General Ken Paxton to accept money from out-of-state donors to defend himself from felony securities fraud charges.

A draft opinion issued before the Monday, Nov. 30 commission meeting states how one of Paxton's unidentified employees can avoid violating state gift-giving law by accepting a "benefit" from a donor with no ties to Texas, who is not subject to the agency's jurisdiction, the San Antonio Express-News reported Friday.

The eight-member commission declined to vote on the measure at the meeting and referred it to a three-person subcommittee for review and possible changes. Commission general counsel Ian Steusloff told Law360 that certain commissioners were concerned about the potential for donation "bundling" under the proposal.

Paxton, a Republican from McKinney, was indicted in July by a Collin County grand jury on two first-degree felony counts of securities fraud and a third-degree felony count of failing to register with the Texas State Securities Board.

Paxton is accused of fraudulently selling more than $100,000 in Servergy stock to two investors in July 2011 without disclosing that he would be paid commissions on it. He also failed to disclose that he had been given 100,000 shares in the company but had not invested in the company himself, according to the indictment.

The securities fraud charge is punishable by 5 to 99 years or life in state prison , the failure to register charge by 2 to 10 years. The charges date back to 2011, when Paxton was a member of the Texas House of Representatives. He was elected attorney general last year and began his term in January.

The securities board fined Paxton $1,000 last year after he admitted he had solicited clients for a friend's investment firm, Mowery Capital Management, without being registered as an investment adviser. Paxton paid the fine and was reprimanded. The harsher criminal charges resulted from a Texas Rangers investigation that began after the board's findings.

Paxton is banned from using campaign money to cover his legal fees in the case because the charges are not related to his official duties. He also is banned from accepting a "benefit" from someone under the agency's jurisdiction.

But Paxton's employee is not prohibited "from accepting a benefit from an individual who does not reside in Texas or from an entity that does not operate in Texas if the donor's only connection with the jurisdiction of the public servant and [Paxton's office] is the act of giving the benefit," the draft opinion states.

Accepting the benefit would not break the law if a diligent records search was conducted, the donor is contacted to establish "identity and circumstances," and the state official is "unaware of any substantial risk the donor is subject to jurisdiction of the public servant of" Paxton's office," according to the draft opinion.

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