U.S. judge dismisses stock scam charges against Texas attorney general

[March 03, 2017]  By Jon Herskovitz

AUSTIN, Texas (Reuters) - A federal judge in Texas dismissed securities fraud charges on Thursday leveled against state Attorney General Ken Paxton, saying he did not act illegally in his dealing with a technology company U.S. regulators have accused of defrauding investors.

Paxton is also facing state security fraud charges for his relationship with the Texas company, Servergy Inc, and a separate investment firm. The Tea Party Republican, who has been trying for months to have all charges dismissed, has said he is the victim of a political witch hunt.

The U.S. Securities and Exchange Commission has accused Servergy, a computer hardware company that develops cloud-based data storage servers, of selling private stock while misleading investors about the energy efficiency of its sole product.

It also accused Paxton of working to raise investor funds for the company without disclosing his commissions.

In dismissing the federal charges, U.S. District Judge Amos Mazzant said Paxton "had no plausible legal duty to disclose his compensation arrangement with investors."

Paxton, who was then a member of the state legislature, recruited investors for Servergy between July 11 and 31, 2011. He raised $840,000, or about one-third of all the investment funds Servergy attracted that year, the judge said.

"The primary deficiency was, and remains, that Paxton had no plausible legal duty to disclose his compensation arrangement with investors," the judge said. Last year, he had thrown out similar charges against Paxton and took up the case again when the SEC amended its filing.

Texas Attorney General Ken Paxton speaks outside the U.S. Supreme Court in Washington, D.C., U.S. April 18, 2016. REUTERS/Joshua Roberts/File Photo

Paxton applauded the decision.

"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 re-filed them," he said in a statement.

Servergy agreed to a $200,000 penalty to settle the SEC case. It neither admitted to nor denied the agency's charges.

The state felony fraud case against Paxton is set to start on May 1.

Paxton, who has sued the administration of former Democratic president Barack Obama more than a dozen times since he took office as the state's top lawyer in 2015, faces up to 99 years in prison if he is convicted on the most serious charge.

(Reporting by Jon Herskovitz; Editing by Lisa Von Ahn)

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