The Securities and Exchange Commission has charged hedge fund Sabby Management LLC and its managing partner, Hal D Mintz, with fraud in connection with a “long running scheme involving misrepresentations and violations of rules for short selling and order making”.
The Securities and Exchange Commission (SEC) has charged hedge fund Sabby Management LLC and its managing partner, Hal D Mintz, with fraud in connection with a “long running scheme involving misrepresentations and violations of rules for short selling and order making”.
The SEC’s complaint alleges that, from at least March 2017 to May 2019, Sabby and Mintz repeatedly circumvented trading rules to conduct unlawful trades in the stock of at least 10 public companies generating more than $2million in illegal profits in the process.
As alleged in the complaint, 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 activity.
The SEC’s complaint, filed in the US District Court for the District of New Jersey, charges Sabby and Mintz with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5 and 10b-21 thereunder. The complaint also charges Sabby with violations of Sections 204 and 206(4) of the Investment Advisers Act of 1940 and Rules 204-2 and 206(4)-7 thereunder and charges Mintz with aiding and abetting those violations. The complaint seeks permanent injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties.
