- Texas Attorney General Ken Paxton was booked on felony fraud charges in 2015. On Thursday, the near-identical federal civil case against him was thrown out
The move by U.S. District Court Judge Amos L. Mazzant III on Thursday means Paxton and his defense team can now focus solely on state criminal charges against him that echo the case that was just thrown out of court — again.
The case against Paxton — in both state criminal and federal civil court — revolves around allegations he duped investors into dumping money into a probably bogus north Texas tech firm, called Servergy, without disclosing that he was being compensated for his recruiting efforts. While Mazzant dismissed the federal case against Paxton last year, the feds quickly regrouped and filed it again.
Mazzant's Thursday ruling dismisses the case with prejudice, meaning the SEC can't file again. The SEC had insisted Paxton, who helped raise some $840,000 in Servergy stock from a small investment group, should have disclosed to those investors that he got a kickback 100,000 shares for his help. In his Mazzant, however, ruled Paxton's behavior didn't rise to the level of federal securities fraud.
"The question before the court is not whether Paxton should have disclosed his compensation arrangement, but whether Paxton had a legal duty under federal securities law to disclose," the judge wrote. "As alleged, Paxton's conduct simply does not give rise to liability under the federal securities laws as they exist today."
The decision gives Paxton a boost as he inches toward his toward his May 1 trial date on nearly identical state criminal charges. While the federal ruling doesn't technically have any bearing on Paxton's criminal case, it does underscore the difficulty ahead for the special prosecutors handling the case, who face a higher burden of proof than in the civil case that was just tossed. As Matthew Nielsen, a top white-collar and regulatory enforcement attorney, told the Dallas Morning News this morning, "It would be highly unusual that someone could be found guilty of criminal activity if there couldn’t even be a civil case alleged against them."
In a prepared statement today, Paxton said the SEC's failed case validates what has long been his defense — that his legal troubles are all political.
"I have maintained all along this whole saga is a political witch hunt," he said in a statement. "Someone needs to hold the SEC accountable for this travesty."