SEC Charges Investment Adviser and Principal in Abusive Naked Short Selling Scheme

The Securities and Exchange Commission Charges Sabby Management LLC and Managing Partner Hal D. Mintz with Fraud

The Securities and Exchange Commission (SEC) has taken legal action against investment adviser Sabby Management LLC and its managing partner, Hal D. Mintz, for engaging in fraudulent activities related to short selling, order making, and other illicit trading practices. This scheme, which spanned several years, resulted in illegal profits exceeding $2 million.

Circumventing Trading Rules for Unlawful Gains

According to the SEC’s complaint, Sabby and Mintz consistently bypassed trading regulations, conducting prohibited trades in the stocks of at least 10 publicly traded companies between March 2017 and May 2019. Short selling, a legitimate trading practice, involves borrowing securities and selling them at a higher price, with the expectation of buying them back at a lower price in the future before returning them to the lender. However, Sabby and Mintz engaged in illegal “naked short selling” by knowingly or recklessly placing short sales without borrowing or locating the shares, and subsequently failing to deliver the shares within the required timeframe. These deceptive actions were undertaken with the aim of generating profits that could not be obtained through legal means.

Artificially Deflating Securities Prices

The SEC’s complaint further reveals that Sabby and Mintz sometimes utilized naked short selling to artificially deflate the prices of targeted securities. By manipulating the market in this manner, they gained the opportunity to acquire more shares at a reduced cost, increasing their potential profits.

Attempts to Conceal Fraudulent Trading

In an effort to conceal their fraudulent activities, Sabby and Mintz employed tactics such as using securities obtained after the trades to deceive executing brokers into believing that they had borrowed or located the shares prior to trading. The complaint alleges that when confronted by at least one broker about their trading, they repeatedly lied to cover up their actions.

Legal Violations and Penalties

The SEC’s complaint, filed in the U.S. District Court for the District of New Jersey, charges Sabby and Mintz with multiple violations, including those under Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5 and 10b-21. Additionally, Sabby is charged with violations of Sections 204 and 206(4) of the Investment Advisers Act of 1940 and Rules 204-2 and 206(4)-7, with Mintz being charged as an aider and abettor in these violations. The complaint seeks permanent injunctive relief, disgorgement of ill-gotten gains along with prejudgment interest, and the imposition of civil penalties.

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