State Senator Reprimanded For Violating the Texas Securities Act

The Texas State Securities Board has reprimanded Senator Ken Paxton and ordered him pay a $1,000 fine for soliciting investment clients even though he wasn’t properly registered. According to the board’s disciplinary order, Paxton, who is running for state attorney general, violated the Texas Securities Act. Under the Act’s Section 12.B, a person cannot act as an investment adviser representative unless he/she is registered as one for that investment adviser in particular.

The Texas Tribune reports that Paxton started working as a solicitor for companies belonging to Fritz Mowery in 2001. On three occasions, in 2004, 2005, and 2012, he took part in unregistered solicitations and referred the customers to Mowery Capital Management, LLC. The fine is for the last incident, which occurred within the last five years. (One of the incidents led to a Texas securities fraud case in 2009 when investors Teri and David Goettsche sued Paxton and Mowery for breach of duty.

In their Texas investment fraud case, the Goettsches claimed that Paxton recommended they invest with Mowery while failing to mention that he would get a 30% commission for the referral. The couple later dropped the securities lawsuit.

In other Texas securities news, a federal judge has sentenced a Brazoria County woman to three years in prison for investment fraud. Kimberly Fontenot bilked clients when she used a voice actor to pose as a rich investor. She falsely claimed that she knew a lot of rich “angel investors.” Fontenot will have to pay back over $115,000 to victims.

About 20 investors were defrauded in a scam involving her company Stellar Grants Inc. The voice actor was hired to pose as the fake wealthy investors during conference calls.

Prosecutors said that Fontenot used Gmail.com and Yahoo.com to set up bogus email accounts for these fake angel investors, who would then send e-mails to her customers. She had these clients (or their reps) sign “Master Consulting Agreements” that included a penalty clause for directly contacting the angel investors.

Two other Texans also in the headlines over fraud allegations are billionaire brothers Sam and Charles Wyly. The latter is deceased. Both men are on trial for allegedly making $550M because they concealed share holdings in offshore trusts.

According to the Securities and Exchange Commission, for 13 years the brothers hid trades in four public companies in which they were board members -Michaels Stores. Inc., Scottish Annuity & Life Holdings Ltd., Sterling Commerce Inc., and Sterling Software Inc. The regulator is suing them for insider trading and securities fraud.

The Wylys’ lawyer denies that the men hid the trusts or broke the law.

Shepherd Smith Edwards and Kantas, LTD LLP is a Texas securities fraud law firm. Our main office is in Houston.

Read the Disciplinary Order against Paxton (PDF)

Paxton Violated Securities Law, Gets Reprimand, The Texas Tribune, May 2, 2014

‘Investment Advisory Firm’ Owner Convicted of Fraud, FBI.gov, December 5, 2013

Jurors Weigh Fraud Charges Against Wyly Brothers Accused Of 13-Year ‘Scheme of Secrecy’, Forbes, May 8, 2014

More Blog Posts:
Texas Man Gets 25 years in Prison for $11M Ponzi Scam, Stockbroker Fraud Blog, April 21, 2014

Securities Lawsuits Accuse BlackRock Of Charging Exorbitant Investment Advisor Fees, Institutional Investor Securities Blog, May 8, 2014

Morgan Stanley Gets $5M Fine for Supervisory Failures Involving 83 IPO Shares Sales, Stockbroker Fraud Blog, May 6, 2014