Texas attorney general indicted on felony charges, sources say

McKINNEY, Texas — A grand jury has indicted Texas Attorney General Ken Paxton on multiple felony charges, according to several sources who are familiar with the complaints.

The charges will be unsealed in McKinney on Monday about noon, and a Tarrant County judge has already been appointed to preside over the case, sources told WFAA.

After the indictments are unsealed, Paxton can surrender to be photographed, fingerprinted and booked into jail.

It's unclear exactly what Paxton will be indicted for, although a grand jury here has heard evidence that Paxton, 52, violated securities laws.

Special prosecutors in the Paxton case told WFAA they planned to present a third-degree charge of failing to register with the state securities board as the law requires. They also said they planned to present a first-degree felony charge against Paxton accusing him of securities fraud. All indications are that charge is related to Servergy, a McKinney-based company that has been under investigation by the Securities and Exchange Commission.

Paxton does not have to resign or step down from statewide office as he prepares to face a criminal trial. He can continue to work, just as Gov. Rick Perry did after his two felony indictments in August 2014.

Paxton's case, legal experts predict, will go to trial since his law license and statewide office are now on the line.

He was sworn in as Texas' top law enforcer on Jan. 1. The indictments relate to alleged conduct that occurred while he was serving in the state legislature.

Special prosecutor Kent Schaffer first revealed last month that the Texas Rangers had uncovered new evidence.

He said then that the securities fraud allegations involved losses in excess of $100,000, but Schaffer declined to reveal the specifics of them.

"The Rangers went out to investigate one thing, and they came back with information on something else," Schaffer said in early July. "It's turned into something different than when they started."

On Tuesday, a grand jury heard evidence and testimony presented by special prosecutors Schaffer and fellow special prosecutor Brian Wice in connection with the case. The Texas Rangers investigating the case were also seen entering and leaving the grand jury room.

The two special prosecutors were appointed in April after Collin County District Attorney Greg Willis recused himself from the case.

William Mapp, the founder of Servergy, was also seen entering the courthouse and milling around the grand jury room with his attorney. He and his attorney declined to comment.

Paxton's state filings show he owns at least 10,000 shares of Servergy. His name also appears as a search term in SEC filings accusing Servergy of misleading investors. The filing also listed Paxton's email address under "selected e-mails" of dozens of other contacts.

In those court records, filed in December 2014, the SEC said it was conducting an ongoing investigation into Servergy's "possibly fraudulent statements or omissions related to Servergy's technology and purported business relationships."

The filings accused Servergy of lying to investors about having pre-orders from companies, such as Amazon.

Other than the fact that he owns stock, Paxton's connection to Servergy is not clear.

Allegations of failing to register arose out of Paxton's dealings with friend, business associate and campaign donor Fritz Mowery.

Their working relationship goes way back. They both had offices on the second floor at 206 Kentucky St. in McKinney. Campaign finance records show Mowery donated nearly $16,000 to Paxton's campaigns.

Last May, Paxton was disciplined by the Texas State Securities Board after he admitted to the board that he solicited clients for a friend's investment firm without being registered with the state as the law requires.

According to the disciplinary order, Paxton acted as an "investment advisor" when he solicited clients on behalf of Mowery Capital Management, or MCM.

"Respondent was compensated by MCM for each solicitation resulting in a client relationship with MCM," the order said. "Specifically, MCM agreed to pay Respondent 30 percent of asset management fees collected by MCM from each client that Respondent solicited successfully."

Several clients have said they were not aware of the fee-sharing arrangement.

Paxton paid a $1,000 fine and called it an administrative error.

But that situation ultimately sparked the criminal investigation that led to the appointment of the special prosecutors, the involvement of the Texas Rangers and now the indictments.

Anthony Holm, Paxton's spokesman, has repeatedly said the attorney general has done nothing wrong. Holm also has accused the special prosecutors of being biased and unfair, and engaging in a political witch hunt.

"The securities board was very clear this was no crime," he told WFAA on Tuesday. "It was resolved last spring. It was a civil event. It was a $1,000 fine and we are only here because of liberal activists."

Despite the criminal investigation, Republican state Rep. Matt Krause said Paxton's Tea Party base still supports him.

"I think people are now quick to say, 'Hey let's see where this goes before we get too upset or enraged about it, and see what the facts really are, because maybe there's nothing to it and we don't want to dishonor or disown one of our own,' " Krause said.