The Securities and Exchange Commission (SEC) charged investment adviser Sabby Management and its managing partner, Hal Mintz, with fraud in connection with a long running scheme involving misrepresentations and violations of rules for short selling and order making, as well as other violative trading, that generated more than $2 million in illegal profits.
The complaint seeks permanent injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties.
The SEC’s complaint alleges that, from at least March 2017 through May 2019, Sabby and Mintz repeatedly circumvented trading rules to conduct unlawful trades in the stock of at least 10 public companies. The SEC alleges that Sabby and Mintz engaged in illegal “naked short selling” by intentionally and improperly placing short sales when they knew or were reckless in not knowing that they had not borrowed or located the shares, and then failed to make timely delivery of the shares.
According to the SEC’s complaint, the purpose of Sabby and Mintz’s fraudulent scheme was to earn profits they could not have gained through legal trading. Additionally, as the complaint alleges, on occasion Sabby and Mintz used their naked short selling to artificially deflate the price of securities, allowing them to obtain more shares at a cheaper price.
The SEC’s complaint further alleges that Sabby and Mintz tried to conceal their fraudulent trading, including by using securities acquired after the trades to make it appear to brokers executing the trades that they had complied with the requirement to have borrowed or located the shares prior to their trades. As the complaint alleges, when questioned by at least one broker regarding their trading, Sabby and Mintz repeatedly lied about the trading.
“The SEC alleges that Sabby and Mintz attempted to game the system and make an illegal profit,” said Carolyn Welshhans, associate director of the SEC’s Division of Enforcement, in a statement. “When someone uses naked shorts or other manipulative practices to cheat the market and investors, the SEC will ensure that they are held accountable.”