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Paxton Due Back in Court as Legal Woes Persist

Lawyers for Texas Attorney General Ken Paxton will try to convince a federal judge on Friday to throw out the federal civil fraud case filed against him for allegedly misleading investors in a technology startup.

Texas Attorney General Ken Paxton holds a press conference on June 9, 2016 in front of the U.S. Supreme Court to discuss the filing of a lawsuit against the state of Delaware

Lawyers for Texas Attorney General Ken Paxton will argue Friday morning in a Sherman courtroom that the federal civil fraud case against him should be dismissed, their latest effort to unwind the legal troubles that have dogged Paxton for more than a year. 

A Collin County grand jury indicted Paxton on state criminal charges of securities fraud and failure to register with the state securities board on Aug. 1, 2015, alleging Paxton misled investors in a company years before he became the state's top lawyer.

Paxton ultimately caught the attention of the U.S. Securities and Exchange Commission, which brought similar federal civil charges against him in April.

Now the storm of legal woes is reaching a critical juncture, with Texas' highest criminal court considering whether to review the state charges — Paxton's last resort before trial — and the federal case undergoing its first major challenge. Paxton has denied any wrongdoing in both cases, calling the entire thing politically motivated. 

In the SEC case, Paxton's lawyers have argued the allegations represent a "dramatic overreach and lack any basis in law." The SEC lawsuit, they also say, does not claim he made any false or misleading statements to potential investors in Servergy, a technology startup at the center of both cases. 

"Mr. Paxton should not be left to labor under a cloud of suspicion while enduring years of costly discovery to refute claims that are meritless on their face," Paxton's lawyers wrote in their June motion to dismiss the SEC lawsuit. 

They will get the chance to press that argument at 9 a.m. Friday in federal district court in Sherman before U.S. District Judge Amos Mazzant III. Paxton's team is being led by Matthew Martens, a former top lawyer for the SEC. 

James Spindler, a law professor at the University of Texas at Austin, said he would not be surprised if the court dismisses at least some of the charges before trial. He said SEC lawyers "have their work cut out for them" in specifically proving the charges of fraud, which he called "factually dense inquiries" in the context of a case like this one. 

"Overall, it seems a little questionable," said Spindler, an expert in securities regulation. "It depends really on what the facts are, and they haven’t disclosed a lot of the facts of the case yet." 

Paxton's lawyers apparently remain confident they can knock down the charges. Paxton is not interested in settling with the SEC, according to court records filed earlier this month. That is despite the fact that William Mapp, the founder and CEO of Servergy who has also been indicted, has expressed an openness to settlement talks. 

Paxton's legal drama could stretch well into next year. If his final bid to dismiss the state case is unsuccessful, Paxton's lawyers expect a trial to begin in 2017, according to court records that also show they want any trial in the SEC lawsuit to come second.

In some ways, the stakes of the SEC case are not as high as those in the state case. Paxton could face five to 99 years in prison if convicted of the criminal charges, while he would have to pay back "ill-gotten gains" and other penalties if he loses the civil lawsuit.

Paxton, who has said he plans to run for re-election in 2018, has professed confidence that he will prevail at every turn. His latest pronouncement came last month in response to an Austin American-Statesman editorial calling on him to step down amid a growing "list of embarrassments, legal troubles and ethical lapses" including the fraud charges and more.

"These unfounded charges are, at their core, politically motivated," Paxton said in a note to supporters. He went on to compare the case against him to those against former Gov. Rick Perry and former U.S. House Majority Leader Tom DeLay, two fellow Texas Republicans who were vindicated by the state Court of Criminal Appeals. 

In the state case, Paxton's team is pinning its hopes on a dismissal by the Texas Court of Criminal Appeals after failing to get the charges thrown out by lower appellate courts. There was a hiccup in that effort Wednesday when the court dismissed Paxton's request for it to review his case, saying it did not include all the required paperwork. 

Paxton lawyer Bill Mateja said Paxton's attorneys subsequently refiled the appeal with the previously missing documents. Meanwhile, Paxton special prosecutor Brian Wice responded to the temporary dismissal with a one-sentence statement: "They're called rules for a very good reason: because they apply to everyone."

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Disclosure: The University of Texas at Austin has been a financial sponsor of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.

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