The judge dismissed one count of misappropriation of funds against ex-Mayor Oscar Hernandez, and two counts of the same against former Councilman Luis Artiga.
However, both men are still facing similar charges in a separate case.
The judge denied a motion to dismiss charges against Robert Rizzo, the former city manager accused of masterminding the scheme to loot millions from the city.
Rizzo "virtually ran this loan program unilaterally" and doled out more than 40 loans worth nearly $2 million between 2001 and 2010, Superior Court Judge Kathleen Kennedy wrote in her Feb. 9 ruling.
"This is a textbook case of conflict of interest," Kennedy said.
The Associated Press contributed to this report.