Federal Judge Clears Texas AG of SEC Charges

SHERMAN, Texas (CN) – A federal judge on Thursday dismissed the U.S. Securities and Exchange Commission’s lawsuit against Texas Attorney General Ken Paxton for the second and final time as he awaits trial on similar state criminal charges.

U.S. District Judge Amos L. Mazzant granted Paxton’s motion to dismiss, concluding he “had no plausible legal duty” to tell investors in McKinney-based Servergy that he was paid to promote the company. The SEC claims he raised over $480,000 for the company and was given 100,000 shares of stock while he was in the Texas House of Representatives.

“As alleged, Paxton’s conduct simply does not give rise to liability under the federal securities laws as they exist today,” the 37-page opinion states. “And it is not the province of the court to stretch federal securities laws beyond their scope to prescribe liability based on moral considerations or policy concerns.”

Mazzant’s ruling echoes a conditional dismissal he granted Paxton in October in response to a lawsuit the agency filed in April. The judge said then that any “moral obligation” Paxton had to disclose his compensation to investors did not apply to the case.

At the time, Mazzant granted the SEC leave to allege additional facts, resulting in the agency quickly filing an amended complaint with additional details.

However, Mazzant dismissed the SEC’s amended complaint with prejudice Thursday, meaning no more additions will be considered.

The judge disagreed that Paxton acted as a broker-dealer in the transactions, saying he was merely a “finder.”

“Paxton was neither involved in negotiating the price or terms of the transaction nor was he performing any of the other functions of the broker-dealer,” Thursday’s opinion states. “Although Paxton had prior involvement in the sale of securities during his tenure as a registered broker, this factor alone is not enough to classify Paxton as a broker-dealer rather than a finder.”

On Thursday, Paxton repeated his belief that the case was “a political witch hunt” against him.

“Today’s ruling to dismiss the charges with prejudice confirms that these charges were baseless when the SEC initially brought them and they were without merit when the SEC refiled them,” he said in a statement. “Someone needs to hold the SEC accountable for this travesty.”

Paxton’s attorney in the civil case, Matthew Martens with WilmerHale in Washington, D.C., said “two wins are twice as sweet.”

“We have maintained from day one that the SEC’s case against Ken Paxton was meritless,” he said in a statement. “A federal court has agreed – twice.”

The dismissal hands Paxton a huge legal victory that allows his defense team to focus on the state criminal case against him. Paxton was indicted by a Collin County grand jury in August 2015 on a third-degree felony count of failing to register with the Texas State Securities Board and two first-degree felony counts of securities fraud.

Paxton is scheduled to go to trial on the failure to register charge on May 1, with jury selection beginning on April 20. A delay could occur as the trial judge has yet to rule on a motion by prosecutors to change venue due to their claims that Paxton has conspired to taint the jury pool in Collin County.

Paxton’s attorney in the state criminal case, William Mateja with Polsinelli in Dallas, said in a statement that “we are now focused on Ken Paxton’s full exoneration in the state matter, where the special prosecutor’s burden is even higher and the fraud allegations in the SEC case mirror those in the state case.”

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