As New York socialists looked to expand an electoral beachhead in 2022, they tried something ambitious. They steered supporters to a special campaign committee set up to advance not just a single candidate, but a whole socialist slate.

The group, D.S.A. for the Many, allowed the fledgling socialist movement to act something like a major political party, pooling resources and coordinating directly with a dozen candidates. A record eight socialists ultimately won seats in the State Legislature.

But two years later, that Election Day achievement is now threatening to destabilize the movement’s financial stability, after a state elections watchdog found that the group never filed the authorizations needed to raise and spend candidate funds.

The watchdog, Michael L. Johnson of the State Board of Elections, laid out a case against D.S.A. for the Many in a previously unreported complaint last year. Now, he has asked a court in Albany to help enforce more than $300,000 in penalties, tipping the fight into public view.

At its center is a decidedly technical dispute over New York campaign finance law. But the real-world consequences could be far-reaching: The potential damages equal roughly what D.S.A. for the Many spent on the 2022 elections, and seven times its cash reserves.

Democratic socialist leaders have spent months trying to plead their innocence. They said they were still hopeful they could convince the judge, Roger D. McDonough, that they had acted in good faith when setting up the committee and followed the advice of the Board of Elections’ own representatives.

Still, the legal and financial threats could scarcely come at a worse time for the group. After years of establishing itself as a left-wing thorn to the Democratic Party, the Democratic Socialists of America is facing backlash over its harsh criticism of Israel in the aftermath of Hamas’s Oct. 7 attack. And its national umbrella organization is already grappling with its own budget deficit.

“Whether they intend to or not, this sends a chilling message to grass-roots organizations,” said Jeremy Cohan, a leader of D.S.A.’s New York chapter. “This is ultimately a case about paperwork and not substance. I myself am a little flummoxed as to why it has been an enforcement priority.”

If the case holds, Mr. Cohan said the group would be forced to ask donors to help recoup the costs, sucking up resources that would have gone to 2024 campaigns and political organizing to pay off fines.

The case apparently stretches back to at least last spring, when Mr. Johnson’s office received an anonymous tip raising concerns about D.S.A. for the Many’s legal paperwork.

Though it often acts like one, the D.S.A. counts fewer than 10,000 members in New York, making it too small to qualify as a political party. It created D.S.A. for the Many in 2020 to serve as something of a stand-in to support the group’s candidates for state office and to build on efforts to push Democrats leftward in primaries and policy fights.

“Every donation helps to power a socialist future,” D.S.A. for the Many wrote in one appeal.

It had registered as a multicandidate committee, a special legal status that allowed it to coordinate with candidates and spend near unlimited funds toward their election, but only if those candidates explicitly authorized the committee to do so in writing.

That’s where the problems began. The group filed paperwork stating that it was authorized to support more than a dozen candidates, including the State Assembly members Emily Gallagher, Zohran Mamdani and Sarahana Shrestha, as well as State Senators Julia Salazar, Jabari Brisport and Kristen Gonzalez.

But an investigation by Mr. Johnson found that the group — a forceful champion for more transparency in the campaign finance system — never actually produced the documentation required under the law to prove the authorizations: either a sworn affidavit from the candidate or a signed state form. Without them, Mr. Johnson concluded that the group had no special status and therefore had raised and spent more than the legal limit supporting the candidacies.

He directed the group and its treasurer, Devin McManus, to repay $202,068.95 in excessive spending. He also assessed a $110,000 fine, but did not find that the candidates themselves were at fault.

In a statement, Mr. Johnson, who was appointed by a Democratic governor, argued that the case went to “the heart of transparency regarding campaign finance disclosure.”

“The public has the right to know whether an entity raising and spending money on behalf of a candidate has the authorization to do so,” he said.

Democratic socialist leaders fought back in proceedings that were secret at the time. They produced emails from 2020 that appeared to show a representative of the Board of Elections giving guidance in writing that contradicted what Mr. Johnson was now claiming, including that written authorization records would not be necessary if the candidates were onboard.

The candidates wrote to Mr. Johnson saying they had indeed signed off on the group’s actions at the time. One of them, Ms. Salazar, said in an interview, “I was fully aware I, as a candidate, had authorized the multicandidate committee to fund-raise and spend on my behalf.”

But in December, a neutral hearing officer for the Board of Elections issued a 37-page decision siding with Mr. Johnson.

Among other things, the officer wrote that the after-the-fact confirmation by the candidates was not sufficient, and that the email exchange was not clear enough to exonerate the group or relieve it of following the state’s written instructions on how to properly authorize.

“Authorizations are the single most important documents that a multicandidate committee must secure and keep,” wrote the officer, Thomas Swyers. “A multicandidate committee fails to exist without proper authorizations.”

It will now be up to Judge McDonough to revisit the factual dispute, as well as a claim by D.S.A. for the Many that Mr. Johnson is seeking to penalize the group using a statute that does not apply.

Outside election lawyers said they were surprised the D.S.A. had not reached a settlement before it became public, potentially for a smaller penalty. But some agreed the case itself appeared to raise important — if arcane — legal issues.

“This may seem like small potatoes, but it isn’t,” said Jerry H. Goldfeder, a veteran Democratic election lawyer. Without the required authorizations, he said, voters could not get the “full picture of who is spending money and for whom.”

“I would think these folks would know better,” he added.

Mr. Cohan, for his part, declined to speculate whether the case had been politically motivated, but he said a judgment against the group clearly “would make life harder on D.S.A.”

He questioned why the state was not going after larger, dark-money groups with equal zeal.

“We are not a big organization. We have literally one staff member,” Mr. Cohan said. “We have needs and others things we want to be spending our members’ really valuable contributions on.”