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State v. Kobrin Securities Inc.

Decided: August 4, 1988.

THE STATE OF NEW JERSEY AND JAMES MCLELLAND SMITH, CHIEF, NEW JERSEY BUREAU OF SECURITIES, PLAINTIFFS-APPELLANTS,
v.
KOBRIN SECURITIES, INC., A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF NEW JERSEY, ROBERT T. FITZSIMMONS, INDIVIDUALLY AND AS AGENT OF KOBRIN SECURITIES, INC.; LAWRENCE S. REPACE, INDIVIDUALLY AS AGENT FOR KOBRIN SECURITIES, INC.; AND LEONARD BERMAN, INDIVIDUALLY AND AS COMPLIANCE OFFICER AND FINANCIAL PRINCIPAL OF KOBRIN SECURITIES, INC., DEFENDANTS, AND BARRETT R. KOBRIN, INDIVIDUALLY AND AS PRESIDENT, DIRECTOR, AND CHIEF EXECUTIVE OFFICER OF KOBRIN SECURITIES, INC.; RICHARD L. KOBRIN, INDIVIDUALLY AND AS SECRETARY OF KOBRIN SECURITIES, INC.; WARREN SANDY, INDIVIDUALLY AND AS CHIEF FINANCIAL OFFICER OF KOBRIN SECURITIES, INC.; ARMAND DEANGELIS, INDIVIDUALLY AND AS VICE PRESIDENT AND AGENT OF KOBRIN SECURITIES, INC.; ARDEN BROWN, INDIVIDUALLY AND AS VICE PRESIDENT, SECRETARY AND SHAREHOLDER OF KOBRIN SECURITIES, INC.; AND PETER CALCUTTA, INDIVIDUALLY AND AS AGENT OF KOBRIN SECURITIES, INC., DEFENDANTS-RESPONDENTS



On appeal from the Superior Court, Appellate Division, whose opinion is reported at 221 N.J. Super. 169 (1987).

For reversal and remandment -- Chief Justice Wilentz and Justices Clifford, Handler, Pollock, O'Hern, Garibaldi and Stein. For affirmance -- None. The opinion of the Court was delivered by O'Hern, J.

O'hern

The question in this case is whether the State may proceed with a civil fraud action against associated securities dealers while certain of them are subject to pending criminal actions arising out of the same transactions. (We refer thus to the defendants generally. Some were officers of the firm, some were the firm's traders, and some were sales representatives.) The parties to the criminal actions have in the civil proceedings asserted their privilege against self-incrimination and have refused to provide discovery to the State. This is their right. It is not their right to bar the State from proceeding to obtain civil relief for securities fraud either in the form of damages or an injunction. Nor may their unindicted associates refuse to give discovery or otherwise restrain the civil litigation against them while the criminally accused dealers continue to invoke the right to remain silent; like the indicted defendants, however, they may exercise their privilege against self-incrimination, but may not indefinitely stay the civil proceedings. Hence, we reverse the judgment below, which had the effect of staying the civil securities fraud actions until the conclusion of the criminal proceedings.

I

The reported decisions below, 221 N.J. Super. 169 (App.Div.1987), and 213 N.J. Super. 161 (App.Div.1986), set forth the background for this appeal. This civil matter began on July 2, 1985, when the State of New Jersey filed a complaint for securities fraud seeking relief pursuant to N.J.S.A. 49:3-47 to -76 against various defendants, including Kobrin Securities, Inc., as well as nine individuals. A State grand jury was also

investigating these activities for possible criminal violations and on April 16, 1987, returned a criminal indictment against Kobrin Securities, Inc., as well as against two of the individual defendants in the civil action: Barrett R. Kobrin and Armand DeAngelis.

The civil complaint sought the appointment of a receiver, preliminary and permanent restraints, recission of the sale of certain securities, and award of damages for investors. (The State withdrew its demand for a receiver for Kobrin Securities after a trustee in bankruptcy was appointed to liquidate that corporation.)

On August 1, 1985, a trial court granted the State's application for preliminary restraints and enjoined the defendants Kobrin, DeAngelis, and Kobrin Securities from engaging in virtually any aspect of the securities business in New Jersey. This preliminary injunction is still in force. The State also sought and obtained restraints against the disposition of assets by certain of the individual civil defendants.

Prior to any indictment, plaintiffs and defendants had undertaken discovery in the civil action. Counsel for certain defendants deposed Richard Barry, investigator for the State Bureau of Securities (the Bureau). As of January 1986, Barry had appeared for depositions approximately six times. Counsel for DeAngelis deposed several witnesses who had provided the affidavits and certifications filed with the State's complaint. Counsel for certain defendants reviewed the Bureau's files concerning this matter; those files were made available for inspection and copying.

However, defendants opposed the State's efforts to depose them. DeAngelis and Kobrin, having learned of State and federal criminal investigations into their affairs, declined to answer questions or to produce documents concerning the merits of the civil lawsuit. Notwithstanding this failure of discovery, the State amended its complaint to add more than

ninety certifications from investors alleging losses in ...


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