Los Angeles ? In a victory for Republican Bill Simon’s faltering campaign for governor, a judge on Thursday threw out a $78 million civil fraud verdict against his family’s investment firm.

Superior Court Judge James Chalfant dismissed both the compensatory and punitive damages verdict against William E. Simon & Sons and a nearly $20 million verdict also levied by a jury against another investor group.

The judge also awarded the investors $125,000 to cover their costs in the fight over a failed pay-phone company. Simon & Sons had invested $16.5 million in Pacific Coin and lost it all, and Simon personally lost $1.2 million.

Simon, who faces Democratic Gov. Gray Davis in the November election, was not personally named in the lawsuit, but with corporate wrongdoing in the spotlight, the fraud verdict was political poison for his campaign.

He had described the July 30 jury verdict as “fundamentally flawed.”

“Today is a new beginning for our campaign,” Simon said at a press conference Thursday.

The jury had awarded the verdicts to Paul Edward Hindelang of Santa Barbara, a convicted marijuana smuggler who founded Pacific Coin in Van Nuys.

In his ruling, Chalfant wrote that it was “an immutable fact established by overwhelming evidence” that Hindelang defrauded investors by failing to disclose his convictions, his negotiations with federal authorities to forfeit drug proceeds and the fact that Pacific Coin may have been founded with drug money.

The investors “never would have invested $26 million in Pacific Coin had they known the truth,” he wrote.

Hindelang’s attorney, Geoffrey Thomas, said he would appeal.

The verdict became the focus of a Davis attack ad that remains on the air. It also struck at a key theme of Simon’s first-time candidacy, his boast of private-sector success.

Last month, President Bush toured California to raise nearly $3 million for Simon’s campaign.