HOUSTON, Texas–A letter penned from the director of an Austin-based non-profit funded by the Rockefeller Family Fund (RFF), and a foundation whose top political recipient is reported to be the Ready for Hillary PAC, has “encourage[d]” the Travis County District Attorney to investigate Republican Attorney General nominee Senator Ken Paxton.
Paxton was reprimanded in May by the Texas Securities Board, but the Board declined to refer the matter to the Attorney General for prosecution. Paxton received a $1,000 civil fine. No one has ever been prosecuted under state securities law for a violation.
The Director of Texans for Public Justice (TPJ), Craig McDonald, wrote the Travis County District Attorney and the Director of the Special Prosecution Division on July 18th, stating, “I encourage your offices to investigate, and if warranted, appropriately prosecute Mr. Paxton.” His letter comes a little more than three months before the November elections.
McDonald’s letter states that the content of it regards a “Complaint re: Kenneth Warren Paxton.” This letter is not a signed and sworn complaint filed with the District Attorney.
Texans for Public Justice is funded by the RFF, Arca Foundation, Solidago Foundation, Proteus Fund, and other leftist organizations. The Arca Foundation established by the daughter of the founder of the R.J. Reynolds tobacco company, is reported by the Center for Responsive Politics to have its top political recipient as the “Ready for Hillary” PAC.
The RFF is funding a project called the “Registration Modernization initiative” which the Fund states was created to counter the efforts of “states [that] have taken a range of official actions designed, in practice, to limit voting of the poor, elderly, newly enfranchised immigrants, and people of color.” The RFF states it “is focused on expanding participation in the nation’s democracy by enacting legislation to provide automatic and permanent registration to all voters.”
The Rockefeller Family Fund recipient, Center for American Progress, has a website that contains articles reporting that President Obama has the power to use “executive authority [not absolute] to set enforcement priorities, defer deportations of unauthorized immigrants, and mitigate some of the harshest effects of our broken immigration system.” Another donor to TPJ is the Proteus fund. It touts that it “has been the largest supporter of state-based marriage equality efforts.” Another funder, the Solidago Foundation, states that its purpose is to build capacity for social change and “the re-distribution of resources.”
Ken Paxton is guilty of nothing except unwittingly soliciting clients for an investment adviser during a time period when the adviser alternated between regulation by the U.S. Securities and Exchange Commission (SEC) and the Texas State Securities Board.
The Texas State Securities Board reprimanded and fined Paxton for this administrative oversight. The Board did not make a finding that Paxton knew or should have known he wasn’t properly registered. The State Securities Board closed the matter without referring it to the Texas Attorney General for criminal prosecution. It was within the Board’s power under Texas law to do so.
No one in Texas has ever been prosecuted solely for soliciting clients for an investment adviser while being unregistered. Moreover, no one can be guilty of a crime unless they have the mental intent, or “mens rea,” to commit a crime.
The Texas State Securities Board fined Senator Paxton $1,000. The order issued from the Board only “reprimanded” Paxton for acting as an investment adviser representative for one company (Mowery Capital Management, LLC, MCM) when that company was registered as an adviser with the State Securities Board. Paxton was actually properly registered as of December 2013, long before the initial inquiries into this matter were raised during the primary run-off.
A Democrat trial lawyer who had sued Ken Paxton and lost, John Sloan, sent a letter to the Securities Board after the issue was raised by the media and Paxton’s opponent in the Attorney General race. The State Securities Board immediately closed the complaint upon receipt in light of the May 2 Order. John Sloan has made over 100 donations to Democrats or Democrat organizations, including nine donations to Wendy Davis from October 2013 to February of 2014. Sloan has also given numerous donations to Kirk P. Watson, the Texas Trial Lawyers Assn. PAC, Bill White for Governor, and other liberals and left-of-center organizations.
Now whether a company must register as an adviser with a state or the SEC is an issue of how much money they manage. The Dodd-Frank Wall Street Reform and Consumer Protection Act created a bright-line rule requiring an investment adviser managing more than $100 million in client assets to register with the SEC. The act provides that any investment adviser managing less than $100 million must register with the state where they have their principal place of business. Moreover, unlike state law, federal securities law only mandates the registration of an investment adviser. It does not require the registration of investment adviser representatives, or those acting as solicitors such as Senator Paxton. Therefore, Senator Paxton had no obligation and no duty to register as either a solicitor or investment adviser representative while MCM was federally registered and regulated by the SEC. Thus, the question for Senator Paxton was whether he violated state securities laws.
As seen in its order, the Texas State Securities Board found that MCM was registered with the Securities Commissioner as an investment adviser from October 1, 2004 to November 6, 2008. It determined that “MCM transitioned from state registration to federal registration” in November of 2008 and that MCM registered with the SEC on November 6, 2008. It also found that on June 25, 2012, MCM transitioned back to state registration and is currently registered as an investment adviser with the Securities Commissioner.
The Board opined that Paxton solicited three clients at times when MCM was a state-registered investment adviser and Paxton was not registered as an investment adviser representative of MCM. These solicitations occurred years apart, one each in 2004 and 2005, and then in 2012.
The State Securities Commissioner found that Paxton’s lack of registration was a violation of section 12.B of the Texas Securities Act. According to section 23-1.E of the act, any enforcement activities related to the administrative assessment of a fine must be “commenced within five years after the violation occurs.”
When the Securities Commissioner issued his Conclusions of Law in the order, it was determined that Paxton would be fined “[p]ursuant to Section 23-1.A(3).” Looking at section 23.1.A of the Texas Securities Act, the Commissioner found that Paxton merely “engaged in an act or practice that violates this Act or a Board rule or order.”
The Commissioner thus declined to find under sections 23.1.A(1), (2) and (4) of the act that the Senator: “engaged in fraud”; “made an offer containing a statement that is materially misleading or is otherwise likely to deceive the public”; or had an “intent to deceive or defraud”; or had a “reckless disregard for the truth or the law.”
Section 3 of the act mandates that the “Commissioner shall at once lay before the District or County Attorney of the proper county any evidence which shall come to his knowledge of criminality under this Act.” The Commissioner did not do so.
Senator Paxton waived the right to a hearing and consented to the Commissioner’s order. He took action immediately after being notified of the issue.
Gary Polland, former Harris County Republican Party Chair and criminal and civil lawyer, told Breitbart Texas, “This is right out of the Democratic playbook – the criminalization of politics used to distract and confuse voters.”
The targets of Texans for Public Justice’ watchdog activities are generally conservatives and Republicans. Governor Rick Perry has been a recent target, and the group filed an amicus brief with the Texas Court of Criminal Appeals in June urging the Court to reverse the intermediate appellate court’s overturning of Tom Delay’s convictions. Senator Paxton faces Democratic nominee Sam Houston in November.
Lana Shadwick is a lawyer who has served as a judge and prosecutor. Follow her on Twitter @LanaShadwick2.