SHERMAN, Texas (CN) — A federal judge Friday dismissed the SEC lawsuit against Texas Attorney General Ken Paxton, handing him a first legal victory since he was indicted on state criminal securities fraud charges last year.
In granting the motion to dismiss, U.S. District Judge Amos Mazzant said Paxton "did not have a legal obligation to disclose his financial arrangements."
"This case is not about whether Paxton had a moral obligation to disclose his financial arrangement with Servergy to potential investors," the ruling states. "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."
Paxton said in a statement: "I appreciate the judge's thorough review and I am gratified by his dismissal of the entire case."
The Securities and Exchange Commission sued Paxton in April, claiming he did not tell prospective investors in McKinney-based Servergy that he was paid commissions to promote the company.
The SEC said Paxton raised more than $480,000 for the company and was given 100,000 shares of stock while he was in the Texas House of Representatives. The SEC said Paxton "did nothing" to determine whether company founder and co-defendant William E. Mapp's claims of more purchase orders to a worried investor were true.
In opposing dismissal, the SEC denied Paxton's claims that its charges were "dramatic or overreaching," but called them "well-pleaded assertions of long-standing federal securities laws."
Nor did the SEC agree with claims that his statements to investors "were mere puffery" and did not trigger a duty to disclose.
"But he points exclusively to cases involving either known sales commissions (as opposed to the secret payment in this case) or statements made by the issuer, whose incentive to tout itself is obvious," the SEC's 38-page response stated. "Notably, Paxton cites no case like this one, in which a defendant 'affirmatively create[d] an impression of a state of affairs that differ[ed] in a material way from the one that actually exist[ed].'"
Paxton's legal troubles began in August 2015 when a Collin County grand jury indicted him on two first-degree felony counts of securities fraud and a third-degree felony count of failing to register with the Texas State Securities Board.
The allegations in the criminal case closely mirror those in the SEC's civil suit regarding Synergy. Paxton faces up to 99 years in state prison if convicted.
A trial judge rejected Paxton's motions to dismiss the criminal charges in December and the en banc Fifth District Court of Appeals in Dallas rejected his appeal in June.
Paxton filed a last-ditch appeal with the Texas Court of Criminal Appeals in August to avoid trial.
Paxton's attorney in the civil case, Matthew Martens with WilmerHale in Washington, D.C., applauded the dismissal of the SEC case as a "victory for Ken Paxton."
Paxton's attorney in the state criminal case, William Mateja with Polsinelli in Dallas, said the SEC's allegations mirror those in the criminal case.
"Now we turn our attention to Ken's exoneration in the state matter, where the prosecutor's burden is even higher," he said in a statement.
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.