Today the Texas Coalition for Lawyer Accountability (TCLA), through its Acting Executive Director, Erica Gammill, is filing a disciplinary complaint against Ken Paxton based on numerous violations of the Texas Disciplinary Rules of Professional Conduct (the “Rules”). Ken Paxton is the Republican nominee for Texas Attorney General. On April 9, 2014, the State Bar filed a disciplinary suit against the Libertarian nominee for Texas Attorney General. Fairness requires equal application of disciplinary enforcement, regardless of political party affiliation.
Mr. Paxton has recently acknowledged under oath that he committed several violations of the Texas Securities Act by acting as a paid investment adviser representative for Mowery Capital Management, LLC (“MCM”) without registering with the Texas Securities Commission. On May 2, 2014, Texas Securities Commissioner John Morgan signed a Disciplinary Order against Mr. Paxton. The Disciplinary Order found that Mr. Paxton had violated Section 12.B of the Texas Securities Act by acting as a paid
investment adviser representative for MCM without registering with the Texas Securities Commission. Mr. Paxton admitted to this illegal and unethical conduct by signing a sworn acknowledgement. By failing to register as required by the Texas Securities Act, Mr. Paxton also apparently committed a third-degree felony under Section 29.I of the Texas Securities Act.1 Thus, by his own admission, Mr. Paxton has committed a crime under Texas law—specifically, a third degree felony.
Additionally, Mr. Paxton’s former client, Teri Goettsche, sued Mr. Paxton, and alleged, among other things, that Mr. Paxton had taken secret kickbacks from MCM in the form of commissions for referring her and her husband to MCM. Allegedly Mr. Paxton never disclosed to the Goettsches that he was secretly acting as a paid investment advisor representative for MCM and therefore received 30 percent of MCM’s quarterly investment management fee for referring the Goettsches.
These alleged actions by Mr. Paxton raise very serious questions concerning whether Mr. Paxton has violated the fundamental rules of legal ethics that apply to all Texas lawyers, including:
- Disciplinary Rule 1.06 – which prohibits conflicts of interest, including conflicts arising from a lawyer’s personal interests.
- Disciplinary Rule 1.08(a) – which prohibits a lawyer from entering a business transaction with a client unless the terms are fair and reasonable to the client and other conditions are met.
- Disciplinary Rule 8.04(a)(2) – which prohibits a lawyer from committing a serious crime or any other criminal act that reflects adversely on the lawyer’s honesty, trustworthiness, or fitness in other respects.
- Disciplinary Rule 8.04(a)(3) – which prohibits a lawyer from engaging in conduct that involves dishonesty, deceit, misrepresentation or fraud.
Like every other Texas lawyer, Mr. Paxton must comply with the legal ethics rules that govern the legal profession—the Texas Disciplinary Rules of Professional Conduct. Professional misconduct that violates those Rules can result in sanctions, including suspension or disbarment from the practice of law.
Materials: Below you can find links to the complaint narrative and complaint by Erica Gammill, acting TCLA Executive Director.
1 Section 29.I of the Texas Securities Act provides as follows: “Penal Provisions. Any person who shall: . . . I. Render services as an investment adviser or an investment adviser representative without being registered as required by this Act shall be deemed guilty of a felony of the third degree.”