AUSTIN (KXAN/AP) — A federal judge has dismissed the SEC fraud charges against Texas Attorney General Ken Paxton as written, but is giving regulators two weeks to try again, the Associated Press reported Friday.
The decision is unrelated to the criminal fraud charges that Paxton is fighting in state court. Paxton has pleaded not guilty to the criminal charges and won’t stand trial until 2017 at the earliest.
The AP is calling it a significant victory for the Republican, who has been under felony indictment for most of his 20 months in office.
Paxton was accused of allegedly recruiting investors while hiding the fact that he was being compensated to promote the stock for Servergy Inc., a computer hardware company that develops cloud-based data storage servers. He was indicted last year and later sued by the U.S. Securities and Exchange Commission, which began investigating Servergy in 2013.
According to the SEC’s complaint, Paxton raised $840,000 in investor funds for Servergy and received 100,000 shares of stock in return, but never disclosed his commissions to prospective investors while recruiting them. “People recruiting investors have a legal obligation to disclose any compensation they are receiving to promote a stock, and we allege that Paxton and White concealed the compensation they were receiving for touting Servergy’s product,” said Shamoil Shipchandler, Director of the SEC’s Fort Worth Regional Office, in April.
“This case is not about whether Paxton had a moral obligation to disclose his financial arrangement with Servergy to potential investors,” District Judge Amos Mazzant wrote. “This case is also not about whether Paxton had some general obligation to disclose his financial arrangement to his investor group. The only issue before the Court is to determine whether the facts as pleaded give rise to a plausible claim under federal securities laws.”
Matthew Martens, a partner from WilmerHale who is General Paxton’s lead attorney in the SEC matter, applauded the judge’s decision. “This is a victory for Ken Paxton. Obviously, we are pleased with the Court’s ruling today.” Paxton said, “I appreciate the judge’s thorough review and I am gratified by his dismissal of the entire case.”
Bill Mateja, a shareholder from Polsinelli who is on both Paxton’s SEC and criminal defense teams, added: “Now we turn our attention to Ken’s exoneration in the state matter where the prosecutor’s burden is even higher. The fraud allegations in the SEC case mirror those in the state case.”