A New Jersey-based investment adviser and its managing partner were charged by the Securities and Exchange Commission (SEC) with engaging in a fraudulent short selling scheme involving the stocks of nearly a dozen public companies.
Sabby Management and its principal, Hal Mintz, allegedly generated more than $2 million in illegal profits through violative trading practices, including “naked short selling.” In a naked short sale, a seller does not borrow or arrange to borrow securities in time to make delivery to the buyer within the standard settlement period. Sabby and Mintz utilized the tactic to “artificially deflate the price of securities, allowing them to obtain more shares at a cheaper price,” the SEC said in a press release Monday.
The agency’s complaint, filed in U.S. District Court for the District of New Jersey, seeks permanent injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties.
The details: From at least March 2017 to May 2019, Mintz carried out his and the company’s fraudulent scheme by repeatedly circumventing trading rules involving at least 10 issuers on behalf of two private funds the company managed, according to the SEC’s complaint. The alleged misconduct included mismarking sales of securities as “long” when they should have been “short” and selling shares short when they knew or were reckless in not knowing they had not borrowed or located the shares. The latter example is a violation of Regulation SHO, the SEC noted.
Sabby and Mintz attempted to conceal the scheme by lying to the brokers executing their trades and using securities acquired after trades to make it appear they had borrowed or located the shares prior to their trades, according to the SEC. The agency’s complaint includes reference to an exchange in which Sabby and Mintz attempted to deceive the director of compliance of an unnamed broker-dealer regarding their short sales.
Compliance considerations: In October 2015, Sabby agreed to pay nearly $280,000 and cease and desist from future violations as part of a settlement with the SEC related to alleged improper short sales.
Sabby could not be reached for comment.
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