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Texas Attorney General Ken Paxton Faces First Court Hearing in Fraud Case

Bob Daemmrich
The Texas Tribune
Attorney General Ken Paxton, surrounded by family, takes the oath of office in the Senate chamber on January 5, 2015.

Expected to formally plead not guilty to three felony charges, Texas Attorney General Ken Paxton is set to appear in court Thursday for the first time since his booking earlier this month.

The state’s top civil lawyer had hoped to skip the initial hearing in his financial fraud case — relating to claims Paxton misled investors in business dealings before he took office — and have his attorneys enter his plea.

But state District Judge George Gallagher of Fort Worth, tapped to oversee the case after a Collin County judge recused himself, earlier this week denied Paxton's request to avoid attending the hearing. 

A Collin County grand jury indicted Paxton on two first-degree and one third-degree felony charges in July. Paxton allegedly persuaded two investors to buy at least $100,000 worth of stock in technology firm Servergy without disclosing that he would be compensated for it, according to court filings.

The McKinney based company is also the focus of a separate U.S. Securities and Exchange Commission investigation into whether it defrauded investors with false claims about the sales of its data servers and their technological capabilities. 

Paxton’s defenders have sought to portray the indictment as the latest effort to stifle support for a Tea Party favorite, casting the case against him as a political witch-hunt driven by publicity hungry lawyers.

"Normally, seasoned prosecutors are appointed to aid investigations,” former Paxton spokesman Anthony Holm wrote in a scathing op-ed for the Austin American-Statesman published in July. "Instead, these two defense lawyers have built incredibly lucrative practices defending people charged with crimes, including drug and child sex crimes — the very type of criminal Attorney General Paxton tries to put in prison. One wonders about the impartiality of the appointed special prosecutors when their trade is defending those charged with the most heinous of crimes."

NE Tarrant County Tea Party President Julie McCarty, whose grassroots group wields outsized power in the state’s Republican primaries, has become one of Paxton's most fervent advocates. According to her Facebook page, she is organizing a small gathering to show support for Paxton at the Thursday hearing. 

The state’s top Republican officials have offered more measured support. 

“I think everyone is innocent until proven guilty,” said Gov. Greg Abbott on Monday, when asked his reaction to a recent poll showing that 62 percent of likely GOP voters believe Paxton should resign, echoing a short statement he issued when the indictment was unsealed earlier this month.

At the time, Lt. Gov. Dan Patrickreleased a similar statement saying "it is important to recognize that an indictment is not a conviction.”

"I am confident our judicial system will weigh all the facts and applicable law with a blind eye for justice and Ken Paxton, like anyone else, will be afforded his day in court," Patrick wrote.

Speaker of the House Joe Straus, R-San Antonio, has yet to comment on the case.

The hearing is the latest development in what has become a winding saga of personal legal troubles for Paxton, who served six terms in the Legislature before he won his race for Attorney General last year.

The Texas State Securities Board fined him $1,000 last May, after the then-Attorney General candidate admitted he had solicited investment clients for a friend and business partner without properly registering with the state.

For a time, it appeared that might be the end of Paxton’s legal woes. Travis County prosecutors declined last year to pursue charges, referring the allegations to Collin and Dallas counties. Dallas County District Attorney Susan Hawk also passed on bringing a case. When Collin County District Attorney Greg Willis, a Paxton friend and business partner, agreed to take it, he asked the Texas Rangers to investigate.

But in April, Willis stepped aside after accusations of stalling and two private Houston attorneys were tapped to replace him. Now, Paxton faces charges much broader than the case Travis County prosecutors declined to pursue last year.

Paxton's Servergy related dealings are not the first time his investments have drawn scrutiny. 

He drew criticism for his early investments in WatchGuard, a digital technology company founded in 2002 that was able to flourish nationally after a boost from a 2006 Texas Department of Public Safety contract worth $10 million to outfit all state trooper vehicles. Paxton, who was joined by a second lawmaker in the deal, has said he did not know it had contracts with the state at the time. 

There was a second venture involving fellow lawmakers. In 2008, along with three other House members, Paxton bought into a startup technology company that aimed to profit from trades in electricity markets. The four lawmakers later filed a lawsuit saying they had been scammed by an investor involved with the company, a McKinney businessman who claimed to be a part of an expedition that discovered Noah’s Ark. 

This story was provided by the Texas Tribune.

Morgan Smith reports on politics and education for the Tribune, which she joined in November 2009. She writes about the effects of the state budget, school finance reform, accountability and testing in Texas public schools. Her political coverage has included congressional and legislative races, as well as Gov. Rick Perry's presidential campaign, which she followed to Iowa and New Hampshire. In 2013, she received a National Education Writers Association award for "Death of a District," a series on school closures. After earning a bachelor's degree in English from Wellesley College, she moved to Austin in 2008 to enter law school at the University of Texas. A San Antonio native, her work has also appeared in Slate, where she spent a year as an editorial intern in Washington D.C.