After 18 months and 3 lawsuits, Byron Cook still hasn’t sworn to his Paxton story

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(AP Photo/Stephen Spillman)

After 18 months, three lawsuits, and various subpoenas, state Rep. Byron Cook, R–Corsicana, still hasn’t given a sworn statement about his business relationships with Attorney General Ken Paxton and three other associates.

At the heart of the criminal case against Paxton and the civil suits against Cook, there’s a question about what sort of understanding Cook and Paxton had with each other and with three other Cook associates — Joel Hochberg, Bill Sandford, and Bob Griggs.

Did they have any formal agreements when they partnered on investments? Did any one of them have fiduciary obligations towards the others? Did either Cook or Paxton unfairly profit off other investors?

The answer could have grave consequences for each man’s future. According to people familiar with Paxton’s thinking, he believes that if Cook is forced to tell the truth in his own defense, his accusations against Paxton will be proven false.

Meanwhile, Cook has managed to stall the litigation against him.

In Dec. 2016, he filed a legislative continuance, a perk granted to lawmakers that requires the postponement of litigation involving them until 30 days after the end of the biennial legislative session.

Then, just as the cases were about to get going last fall, the defendants sought refuge in federal Bankruptcy Court. In December, the federal court sent the cases back to the state. Currently, the two sides are arguing about whether securities laws apply to this sort of oil-and-gas transaction.

Cook is the lead accuser and key witness in a securities fraud case against Paxton.

Since Nov. 2016, Paxton allies have filed three lawsuits against a company called Unity Resources, LLC, in which Cook, Paxton, Hochberg, and Sandford all invested.

Lawsuits by Paxton allies Chip Loper and Mike Buster name Cook, Hochberg, Unity Resources, and the public faces of the company — Mark Mersman and Mark Solomon, Jr.

Both plaintiffs accuse the defendants of swindling them in mineral rights deals. They also allege that Cook and Hochberg engaged in self-dealing through a series of property flips between their own companies and Unity.

“These flips were not disclosed to the Unity board of managers or the equity owners of Unity aside from Mersman, Solomon, Cook, or Hochberg, much less approved by the managers or members after an informed vote,” the plaintiffs write. “Because the profits to Unity or its members were not disclosed and because the transactions epitomized self-dealing, these transactions represented a breach of Unity’s duty of loyalty and full disclosure to the retail investors like Calco Land (Loper’s company), whose transactions Unity brokered.”

Unity argues that even if any self-dealing occurred, that would be an issue for fellow investors, not a concern of the clients, who aren’t owed a fiduciary obligation.

“Calco is not a member of Unity and has no standing to bring claims based on Unity’s internal affairs,” Cook’s lawyer, Terry Jacobson, writes. “These allegations are nothing more than an effort to disparage Defendants Trade Rare (a company owned by Cook and Hochberg), Cook, and Hochberg in the public record and to obtain discovery prying into the private affairs of these defendants.”

The plaintiffs argue that the self-dealing transactions were inseparable from the swindles that affected them.

The third lawsuit was filed by the same law firm as the other two — Scheef & Stone, LLP — on behalf of a company called AGH Consolidated. It’s an attempt to collect a $1.5 million loan to Unity that Mersman and Solomon personally guaranteed. Neither man has the wealth to repay the note, according to their filings in Bankruptcy Court.

If it turned out that Cook was involved in taking advantage of his fellow investors, it would be devastating to a legal theory at the heart of the Paxton case.

Paxton was indicted for “intentionally failing to disclose” a commission he was apparently paid for recruiting investors to a company called Servergy. However, there’s no such specific disclosure requirement in the law.

The prosecutors need to find another basis for the charge. The Securities and Exchange Commission was in much the same position after a judge dismissed its lawsuit against Paxton but allowed the commission to refile.

The SEC came back with a theory that Cook, Hochberg, Paxton, and the others had agreed to express policies and practices, with no member “benefit[ing] off of the investment of another member.”

“Mr. Paxton will prove that it is built on a lie,” wrote his attorney in the SEC case. “Mr. Paxton has already uncovered evidence that Mr. Cook — who purportedly communicated the established ‘policies and practices’ of the investment group to Mr. Paxton — and Mr. Hochberg engaged in apparent self-dealing with a company known as Unity Resources, LLC. Specifically, Messrs. Cook and Hochberg, while investing in Unity Resources alongside Messrs. Paxton and Sandford, engaged in apparent self-dealing transactions with Unity Resources and related entities for the benefit of themselves and Mr. Cook’s family members.”

Ironically, Cook’s lawyers in the Unity litigation are making the sort of arguments that would help Paxton in the criminal case.

“Plaintiff has not adequately pleaded any basis for an alleged ‘special relationship of trust and confidence,’” they write. “Informal relationships that create a fiduciary duty exist only when there is a relationship of ‘trust and confidence,’ but Texas courts ‘do not create such a relationship lightly.’”

The prosecution in Paxton’s case will surely be seeking some distinction between state and federal securities law that would justify convicting him at the state level after he was exonerated at the federal level. But Cook’s lawyers are arguing that there is little difference between them.

It might seem redundant to hear a case at both the state and federal levels, when state and federal law governing the matter is effectively identical.

“(W)hile Calco has pleaded violations of the Texas Securities Act, any court analyzing those claims will also have to look to federal law,” they write. “Texas courts generally look to decisions of the federal courts to interpret the Texas Securities Act because of the obvious similarities between the state and federal laws.”

“The Texas Supreme Court explained that the Texas legislature intended the Texas Securities Act ‘to be interpreted in harmony with federal securities law.’”

If that’s so, if state courts will rely on federal precedent to sort out the law here, then Paxton has one extremely uncommon advantage. He can cite his own exoneration in federal court as proof of his innocence.

Jon Cassidy can be reached at [email protected].

19 COMMENTS

  1. Dictocrats are fine with corruption and graft and lying and deception, as long as it’s their guys’ favor. Even an honest Republican (and some clearly aren’t- like Cook) doesn’t get a fair shake by the libs.

  2. What angers me is Paxton is running with multiple federal indictments. I guess his billionnaire supporters are paying his legal fees. He is an Empowered Texans snake.

  3. Some comments below, they must only listen to da one sided fox stations.
    Listen/read, anything, everything then come to a conclusion.
    Paxton has been involved in numerous, questionable offenses.
    Perry, starting to hear questionable offenses while governor.
    Austin seems to have a den of crooked people.
    Cruz gulps down sausage in da Oval Office.

    VOTE BLUE IN 2018

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