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Ken Paxton, the Texas attorney general, was arrested on felony charges yesterday and booked at the county jail in this Dallas suburb after a grand jury indicted him last week for securities fraud, the start of a criminal case that could complicate and even jeopardize his tenure as the state’s top lawyer, the New York Times reported today. The grand jury, whose indictments against Paxton were unsealed yesterday after his booking, charged him with two counts of securities fraud and one count of acting as an investment adviser representative without being registered with the state securities board. The charges stem from accusations that Paxton, a lawyer and former legislator from McKinney, Texas, misled investors and clients while doing securities work in the years before he became attorney general.

Since the collapse last year of Mt. Gox, the exchange that served as the largest hub for storing and trading the virtual currency Bitcoin, law enforcement officials and angry clients have been asking what happened to nearly half a billion dollars in Bitcoins that the company said had vanished from its computer systems, the New York Times reported yesterday. On Saturday, the Japanese police arrested Mark Karpeles, the head of the exchange, which was based in Tokyo, on suspicion that he had used the popular online financial platform, which he developed, to illicitly add $1 million to an account under his control. But the arrest, and the small amount of information divulged by Japanese law enforcement officials, shed little light on the larger mystery of the missing Bitcoins.

Federal prosecutors yesterday charged a Topsfield, Mass., technology executive with tax evasion, filing a false tax return and bankruptcy fraud, the Boston Business Journal reported yesterday. Robert P. Bonefant Jr. allegedly used companies he owns or partially owns to hide income so he wouldn't have to pay the government back taxes he allegedly owed. The government says he hid more than $680,000 of income from 2009 through 2012. Bonefant also allegedly hid income during still-ongoing bankruptcy proceedings and hid his interest in the three companies — AVC Technology Systems, Signeo International and Signeo USA. Bonefant Jr. was charged via what is known as an “information” rather than indictment — often an indication a defendant plans to plead guilty. Bonefant's lawyer declined to comment. When asked in a bankruptcy deposition whether he planned to plead guilty to criminal charges, Bonefant invoked the fifth amendment in declining to answer.

The law firm leading the charge to recover the funds that Bernard Madoff stole from investors is seeking payment of $40.1 million for four months of work during which an army of lawyers struck deals to recover hundreds of millions of dollars, according to a report yesterday on Dow Jones Daily Bankruptcy Review. Liquidation trustee Irving Picard and his law firm, Baker & Hostetler LLP, on Wednesday filed papers asking a bankruptcy judge to authorize the fees as well as to release $12 million in previously approved fees that haven't yet been paid. Since Mr. Picard was tapped in December 2008 to oversee the liquidation of Mr. Madoff's investment firm — a complex case that has required litigation all over the world — his firm has sought compensation of about $700 million, according to court papers. The fees Baker & Hostetler is seeking cover 97,115.5 hours of work performed, for an average hourly rate of $413.30, between Dec. 1, 2014, and March 31. Mr. Picard and his team said that during that time, they settled 63 lawsuits, allowing them to recover $552.6 million in stolen funds that will be returned to victims of Mr. Madoff's Ponzi scheme. Such "significant results" warrant payment of the fees, Baker & Hostetler attorneys said in the filing. The U.S. Bankruptcy Court in Manhattan will review the request at an Aug. 20 hearing. Mr. Madoff was arrested in December 2008 on charges of running a Ponzi scheme, the biggest of all time. He pleaded guilty in May 2009 and was later sentenced to 150 years in prison. He is serving his sentence at the federal prison in Butner, N.C.

The former mayor of Harrisburg, Pa., was charged yesterday with dozens of counts for allegedly using city money to fund obsessive buying sprees of artifacts that helped plunge the state capital into debt, the state’s attorney general said, the Wall Street Journal reported today. Former Mayor Stephen Reed was charged with running a corrupt organization, bribery and multiple counts of theft, Pennsylvania Attorney General Kathleen Kane said. Reed served as Harrisburg’s mayor for 28 years, leaving in early 2010. The charges against Mr. Reed stem from an investigation into the financing of the city’s debt-ridden incinerator project, according to a grand-jury report released yesterday by Kane. The incinerator, which was supposed to generate electricity and revenue for the city, instead saddled it with $300 million in debt through a series of bonds and loans. Prosecutors alleged that Reed diverted money from those deals to fund what became an addiction to acquiring objects ranging from the Civil War and Wild West to sports memorabilia for museums that he planned.

A prominent Kentucky health-care company that once featured University of Kentucky basketball coach John Calipari in its TV ads filed for bankruptcy protection in the face of accusations from Medicare officials that it paid illegal kickbacks to doctors, Dow Jones Daily Bankruptcy Review reported today. Nurses' Registry and Home Health Corp. filed for bankruptcy on Friday in U.S. Bankruptcy Court in Lexington, Ky., demanding that Medicare officials release $1 million in payments for health-care services it provided. The 200-worker company, which provides skilled nursing, physical therapy and occupational therapy to roughly 1,350 patients, takes in nearly $1.3 million a month in Medicare payments, or about two-thirds of its revenue, according to documents filed in U.S. Bankruptcy Court in Lexington, Ky. Medicare officials suspended payments to Nurses Registry earlier this year after suing the company over alleged kickbacks and improper billing. Nurses Registry has denied wrongdoing. Read more. (Subscription required.)

For further insight into fraud and bankruptcy, be sure to pick up ABI’s newest title, Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case.

The children of craft store kingpins Charles and Sam Wyly say they shouldn’t suffer for their fathers’ transgressions, but the U.S. Securities & Exchange Commission says that they shouldn’t be allowed to spend the proceeds of the brothers’ fraud, the Dallas Morning News reported today. The Wyly brothers used gains from secret, illegal, offshore transactions “as their own personal piggybank,” the SEC had said ahead of appeals hearing yesterday, where the family sought to lift a judge-imposed freeze on its assets. U.S. District Judge Shira Scheindlin’s order against 16 people, including both men’s wives and 10 children, unfairly applies to “any asset that was acquired or commingled with funds received from the Wyly brothers at any time during the past 10 years,” the family said. The appeals panel, which also included judges Jose Cabranes and Christopher Droney, didn’t immediately rule. The SEC won the freeze on the family assets as it seeks to collect a $300 million penalty levied on the Wyly brothers after a trial in which a federal jury found they perpetrated an offshore stock-trading fraud for 13 years. The SEC said the fraud yielded them $550 million in illegal profits.

Peter Rogan last week pleaded not guilty to criminal charges accusing him of trying to evade creditors from collecting nearly $200 million in legal judgments against him in connection with the fraud that brought down Edgewater Hospital and Medical Center, the Wall Street Journal reported today. According to the Chicago Tribune, Rogan faced a $64 million civil judgment in a lawsuit accusing him of submitting false Medicare and Medicaid claims on the hospital’s behalf and another $124 million judgment from a hospital creditor. Prosecutors now say that Rogan worked with his lawyer to avoid paying up, taking such steps as hiding a trust account. Court records show that after entering his not guilty plea in Chicago, Rogan was taken into custody. He will return to federal court on Wednesday for a detention hearing. Read more. (Subscription required.) 

For further analysis of fraud and bankruptcy, be sure to pick up a copy of ABI’s newest title, Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case. 

Bernard Madoff’s victims shouldn’t expect to recover all $17 billion they lost now that the U.S. Supreme Court has refused to hear a case involving money that went to some customers more than two years before his scam collapsed, Bloomberg News reported yesterday. Irving Picard, the trustee unwinding Madoff’s firm, was seeking to reverse a December decision by the Manhattan-based U.S. Court of Appeals that shut off some older recoveries. In a June 22 order, the justices declined to take the case. They gave no explanation. The New York court had ruled that the “stockbroker defense,” also known as the safe harbor, barred lawsuits seeking to recover fictitious profits that lucky customers withdrew from Madoff’s firm as far back as six years before his Ponzi scheme was uncovered.