The Securities and Exchange Commission filed charges against an investment adviser and principal due to engaging in an abusive naked short selling scheme.

The SEC charged investment adviser Sabby Management LLC and its managing partner, Hal D. Mintz, with fraud, according to a June 12 news release. Sabby and Mintz allegedly engaged in illegal practices such as naked short selling and failed to deliver shares in a timely manner. 

“The SEC alleges that Sabby and Mintz attempted to game the system and make an illegal profit,” SEC Division of Enforcement Director Carolyn Welshhans said in the release. 

The charges relate to a long-running scheme that involved misrepresentations and violations of rules for short selling and order making, resulting in more than $2 million in illegal profits, the release reported. The complaint filed by the SEC alleges Sabby and Mintz worked their way around trading rules by carrying out unlawful trades in the stock of a minimum of 10 public companies in between the dates of March 2017 and May 2019.

They reportedly intentionally placed short sales without borrowing or locating the shares, and then later on failed to deliver them, the release said. Additionally, they used naked short selling to artificially lower the price of securities, enabling them to acquire more shares at a cheaper price. 

Sabby and Mintz reportedly attempted to conceal their fraudulent trading by using securities acquired after the trades to make it appear as if they had complied with the borrowing or locating requirements, according to the release.

They also allegedly lied about their trading when questioned by brokers. The SEC seeks permanent injunctive relief, disgorgement of ill-gotten gains with interest and civil penalties as part of the charges, the release reported

The investigation was carried out by the SEC, with assistance from a variety individuals, the release said. The litigation will be led by specific individuals under the supervision of others within the SEC.