New Jersey Court Expands Enforcement Tools in Securities Fraud Cases

A recent decision by the Superior Court of New Jersey’s Appellate Division is expected to reshape the landscape of securities fraud enforcement. The court ruled that regulators may seek both restitution and disgorgement in the same enforcement action, broadening the remedies available when investor harm occurs.

Restitution requires that victims recover losses they suffered, while disgorgement compels wrongdoers to surrender profits gained through illegal activity. Although both are financial remedies, the purposes differ, with restitution aimed at compensating investors and disgorgement designed to deter future misconduct by eliminating illicit gains.

The case involved Owusu A. Kizito, who operated Investigroup LLC and Investigroup NP. Between 2016 and 2020, he allegedly raised more than $16 million from at least 69 investors through unregistered and misrepresented securities offerings. Regulators claimed that funds were diverted to pay personal debts and other obligations and that investors were not informed about existing lawsuits and tax penalties tied to the business.

In August 2022, a trial court awarded more than $15 million in restitution and imposed $1.5 million in civil penalties, but it rejected the Bureau of Securities’ request for an additional $1.5 million in disgorgement, citing statutory limits. The appellate court reversed that portion of the ruling, finding that state law permits multiple remedies when they serve different goals and do not result in double recovery.

The decision underscores the stakes for financial firms, particularly those involved in private offerings. Compliance with securities registration rules and disclosure obligations is not optional, and failure to adhere can now bring layered financial consequences. Restitution and disgorgement together create a more potent deterrent, ensuring that investors are repaid and that illicit profits are stripped away.

The ruling also signals that regulators are prepared to act more aggressively, using every available tool to address investor harm. Firms should expect heightened scrutiny of unregistered promoters, fundraising claims, and disclosures in private placements. To guard against exposure, they must conduct thorough due diligence on all offerings, provide clear and complete disclosures, strengthen compliance programs with internal controls, and ensure that staff are regularly trained on securities law requirements and ethical practices.

The appellate court’s decision expands the enforcement options available to regulators and sends a clear message to the industry. Firms that fail to meet their obligations risk not only reputational damage but also overlapping financial penalties that could prove devastating. Those that adopt rigorous compliance practices will be better positioned to protect their investors and maintain credibility in increasingly vigilant markets.

Source: (Investment News)