Billed as a consumer-protection effort, Texas State Senator Angela Paxton’s Senate Bill 860, which is based on a 2018 Arizona law, would grant broad powers to the attorney general’s consumer protection division.
However this proposal would empower the office of her husband, Texas Attorney General Ken Paxton, to exempt entrepreneurs from certain state regulations so they can market “innovative financial products or services,” including allowing for working as an “investment adviser” without registering with the state board.
When you consider that this is a felony in Texas. And considering that it empowers her husband’s office and that he was issued a civil penalty in 2014 and criminally charged in 2015, paid a fine, and still has criminal charges pending a trial related to this violation. I believe there is an ethical issue here.
The Senate Bill 860, would create what the bill calls a “regulatory sandbox” that would allow approved individuals “limited access to the market … without obtaining a license, registration, or other regulatory authorization.” The bill is based on a 2018 Arizona law which was hailed as the first of its kind. It aims to cut red tape for the growing financial tech sector, allowing businesses to market new products for up to two years and to as many as 10,000 customers without the required registration and oversight from the state.
So what’s the back story?
In 2014, Ken Paxton, then a State Senator (TX- R) and a candidate for Texas Attorney General was “reprimanded” and fined $1,000. The indictments include three felony counts — two alleging first-degree securities fraud and another alleging a third-degree charge that he failed to register as a securities agent.
He was also required to disclose in writing his paid solicitor relationship to any clients he referred to an investment adviser, as he also had not disclosed to a legal client that he was getting paid for referrals.
In fact, Kent Schaffer, one of two special prosecutors who took the Paxton case to the grand jury, said, “Paxton is accused of encouraging others to invest more than $600,000 in a company called Servergy, Inc. without telling them he was making a commission and misrepresenting himself as a fellow investor.” The grand jury also charged Mr. Paxton with failing to register with state securities regulators for soliciting clients for Mowery Capital Management in return for fees.
The picture gets slowly worse. In 2018, a month before the March primary, the attorney general‘s political campaign guaranteed a $2 million loan so that his wife, who was running for a state senate seat in North Texas, would have funds for her campaign. Which meant that if Mr. Paxton’s wife’s campaign could not pay back the loan, Ken Paxton’s campaign would be responsible for repayment!
The Attorney General has justified his actions. During her campaign, he said, “Of course I’m strongly supporting my wife and have been throughout her campaign,” Paxton said in a written statement. “As someone who has represented Senate District 8, the legacy of conservative leadership is very important to me and there is no doubt that Angela Paxton is the constitutional conservative most trusted to represent this district.”
Paxton’s actions also drew criticism from Justin Nelson, a Democratic candidate for attorney general. Nelson’s campaign manager, Nate Walker, said, “This loan is political money laundering… It’s shocking but not surprising that our indicted Attorney General Ken Paxton is using campaign funds to further his personal interest. This loan emphasizes the corruption of the political class.”
Talk about conflicts of interest. If this bill passes it could also have a significant impact on the current pending criminal trial of Ken Paxton. It seems a blatant “thank you” from Angela Paxton to her husband for his unethical monetary support using money that was not his. It is also a flagrant flaunting of ethics principles that diminishes the integrity of elected officials and thumbs its nose at Texas citizens and taxpayers everywhere!