SEC v. Hal D. Mintz; and Sabby Management LLC, No. 2:23-CV-3201, District of New Jersey (June 12, 2023) — Complaint

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Daniel J. Maher
Edward J. Reilly
U.S.
 SECURITIES AND EXCHANGE COMMISSION
100 F Street NE
Washington, DC 20549
Phone: (202) 551-4737 (Maher)
Email: [email protected] (Maher)

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

U.S. SECURITIES AND EXCHANGE COMMISSION, :
                     :
                               Plaintiff,   :
v.   :
   : CASE NO. 2:23-CV-3201
HAL D. MINTZ, and   :
SABBY MANAGEMENT LLC,   :
   :           JURY TRIAL
   : DEMANDED
   :
                               Defendants.   :
   :
        :

COMPLAINT
 Plaintiff U.S. Securities and Exchange Commission (“Commission”), for its Complaint
against defendants Hal D. Mintz (“Mintz”), whose last known address is 7012 Fisher Island
Drive, Miami Beach, Florida 33109, and Sabby Management LLC (“Sabby”), whose last known
address is 115 Hidden Hills Drive, Spicewood, Texas 78669 (collectively, “Defendants”), alleges
as follows:
SUMMARY

1. This complaint arises from a long running fraudulent scheme involving abusive
“naked” short selling, order mismarking, and other violative trading, orchestrated by Defendants
Sabby Management LLC (“Sabby”), a registered investment adviser and recidivist, and its
principal, Hal D. Mintz (“Mintz”).  From at least March 2017 through May 2019, Mintz, a highly

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experienced trader, through Sabby, used his knowledge to game the markets and carry out
Defendants’ fraudulent scheme by repeatedly circumventing trading rules involving at least 10
issuers on behalf of two private funds managed by Defendants (“the Private Funds”).
2. Defendants’ fraudulent scheme involved at least two forms of abusive trading.
First, Defendants knowingly or recklessly mismarked sales of securities as “long” even though
the sales did not qualify as long sales because the Private Funds did not own and were not
deemed to own the securities being sold and did not have a net long position in the securities
being sold.  As a result, Defendants should have marked those sales as “short.”  Failing to mark
the sales correctly was a violation of applicable order marking rules.  Because Defendants’ sales
were actually short sales that they tried to disguise as long sales, and Defendants had not
“located” (i.e., borrowed, arranged to borrow, or had reasonable grounds to believe that the
securities could be borrowed) the shares that they sold, the sales further failed to comply with the
locate requirements of Regulation SHO.  17 C.F.R. § 242.200 – § 204.204.  Second, Defendants
engaged in additional abusive trading in which they marked and sold shares “short” when they
knew or were reckless in not knowing that they had not borrowed or located the s hares.  These
trades also failed to comply with the locate requirements of Regulation SHO.  Further, in each
instance in which Defendants additionally failed to make timely delivery of shares, their trading
also constituted “naked” short selling, which was a further violation of Regulation SHO,
described in more detail below.
3. Defendants engaged in this fraudulent trading scheme because it was more
profitable than following the order marking and locate rules.  As explained in greater detail
below, Defendants would not have been able to carry out their short sales, and thus could not
have profited as they did, if they had followed the rules governing long and short sales.  As a

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result of their misconduct, Defendants obtained at least $2 million in ill-gotten trading profits for
themselves and the Private Funds.
4. On occasion, Defendants additionally used their violative sales to deflate
artificially the price at which Defendants were able to convert their securities into stock.
Through these abusive sales, Defendants acquired more stock at a cheaper price.
5. Defendants took multiple steps to conceal their fraudulent scheme and
misconduct.  They knew or were reckless in not knowing their misconduct violated rules
requiring traders to properly mark long sales and short sales and to obtain locates for short sales.
Defendants repeatedly made false statements to the brokers executing their trades, including
falsely representing that they had locates for their short sales when, in fact, they did not.  As
well, Defendants repeatedly submitted fraudulent order instructions to the brokers, identifying
their sales as “long” in an attempt to disguise their naked short sales and their short sales for
which they had not obtained locates, when they knew that they were required to identify these
orders as “short” sales.  But for these misrepresentations, the brokers would not have executed
these trades since the trades failed to comply with Regulation SHO.
6. In an additional attempt to hide their failure to obtain locates for their short sales
and satisfy their settlement obligations, Defendants in some instances would acquire the required
stock after their short sales, typically by purchasing the stock from the issuer or otherwise
acquiring it through conversion of other securities.  Defendants knew or were reckless in not
knowing that these practices failed to comply with applicable trading rules that require, with very
narrow exceptions not applicable here, a short seller to locate the stock prior to the short sale.
7. While Defendants were often able to conceal from the market their fraudulent
trading scheme, on some occasions, Defendants were unable to deliver securities in time to

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cover their short sales, causing “fails-to-deliver.”   Each instance in which Defendants’
mismarked long sales and shorts sales without locates resulted in fails-to-deliver, Defendants’
conduct also constituted naked short selling.
8. As a result of the conduct described above and more fully below, Defendants
violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. §
78j(b)] and Rules 10b-5 and 10b-21 thereunder [17 C.F.R. § 240.10b-5 and 17 C.F.R. § 240.10b-
21].  Additionally, Sabby violated Sections 204 and 206(4) of the Investment Advisers Act of
1940 (“Advisers Act”) [15 U.S.C. §§ 80b–4 and 80b–6] and Rules 204-2 and 206(4)-7
thereunder [17 C.F .R . §§ 275.204-2 and 275.206(4)-7], and Mintz aided and abetted those
violations.
9. Without an injunction, Defendants are likely to continue to violate the federal
securities laws.
10. The Commission seeks permanent injunctions; disgorgement of ill-gotten gains
derived from the conduct alleged in the Complaint plus prejudgment interest thereon; and civil
money penalties.
JURISDICTION AND VENUE
11. The Commission brings this action pursuant to Sections 21(d) and 21(e) of the
Exchange Act [15 U.S.C. §§ 78u(d) and 78u(e)] and Sections 209(d) and 209(e) of the Advisers
Act [15 U.S.C. §§ 80b-9(d) and (e)].
12. The Court has jurisdiction over this action pursuant to Sections 21(d) and 27 of
the Exchange Act [15 U.S.C. §§ 78u(d) and 78aa] and Sections 209(d), 209(e), and 214 of the
Advisers Act [15 U.S.C. §§ 80b-9(d), 80b-9(e), 80b-14].

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13. In connection with the conduct alleged in this Complaint, Defendants, directly or
indirectly, made use of the means or instruments of transportation or communication in
connection with the transactions, acts, practices, and courses of business alleged herein.
14. Venue is proper in the District of New Jersey pursuant to Section 27(a) of the
Exchange Act [15 U.S.C. § 78aa(a)] and Section 214 of the Advisers Act [15 U.S.C. § 80b-14]
because many of the acts and transactions constituting violations of the Exchange Act and the
Advisers Act occurred in this district, including materially false and misleading order
instructions and other materially false and misleading representations made to brokers.  In
addition, during the relevant period, Sabby’s principal place of business was in this district.
THE DEFENDANTS
15. Hal D. Mintz, age 52, is a resident of Miami, Florida.  During the relevant period,
he was the principal and managing partner of Sabby Management LLC and, at all times, had
primary responsibility for making investment decisions, including daily securities trading
decisions, for the Private Funds described below.  He has served in this capacity since the firm
was established in 2011.  Because of his position, Sabby is liable for Mintz’ conduct alleged
herein.  Mintz is a highly experienced, prolific trader and has worked in the securities industry
since at least 1996.
16. Sabby Management LLC, is a Delaware limited liability company established in
2011.  During the relevant period, it maintained a principal office in Saddle River, New Jersey,
and had approximately five employees.    It has been registered as an investment adviser with the
Commission since July 12, 2013.  Its business consists primarily of managing two private funds:
the Sabby Healthcare Master Fund, LTD and the Sabby Volatility Warrant Master Fund, LTD
(collectively “the Private Funds”).  Defendants are compensated for their management of the

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Private Funds through management fees as well as performance fees tied to the investment
returns earned by the Private Funds.  Sabby has previously been sanctioned by the Commission
in connection with improper short sales.  On October 14, 2015, the Commissioned instituted a
settled cease-and-desist proceeding finding that Sabby violated Rule 105 of Regulation M of the
Exchange Act on two occasions.  The Commission imposed a cease-and-desist order,
disgorgement of $184,747.10 plus prejudgment interest, and a civil penalty of $91,669.95.
OTHER RELEVANT ENTITIES
17. Sabby Healthcare Master Fund, LTD. (the “Healthcare Fund”) is a Cayman
Islands entity established in 2011.  It is a master hedge fund managed by Sabby and has two
feeder funds, one onshore and the other in the Cayman Islands.  At the beginning of the relevant
period, it had approximately $400 million in gross asset value.  As of its most recent public
disclosure, it had approximately $16 million in gross asset value and 28 beneficial owners.
During the relevant period, the Healthcare Fund’s trading strategies and investment decisions
were made by Defendants.  As of September 30, 2022, Mintz held a 7.3% interest in the
Healthcare Fund.
18. The Sabby Volatility Warrant Master Fund, LTD. (the “Warrant Fund”) is a
Cayman Islands entity established in 2011.  It is a master private equity fund managed by Sabby,
with three feeder funds, two in the Cayman Islands and one onshore.  At the beginning of the
relevant period, it had approximately $60 million in gross asset value.  As of its most recent
public disclosure, it had approximately $182 million in gross asset value and 73 beneficial
owners.  During the relevant period, the Warrant Fund’s trading strategies and investment
decisions were made by Defendants.  As of September 30, 2022, Mintz held a 39.9% interest in
the Healthcare Fund.

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19. Issuer 1 is a publicly traded Nevada corporation with its principal place of
business in Palo Alto, California.  During the relevant period, Issuer 1’s common stock was
registered with the Commission pursuant to Section 12(b) of the Exchange Act and traded on the
Nasdaq Stock Market LLC.  It files annual reports with the Commission pursuant to Sections 13
and 15(d) of the Exchange Act.
20. Issuer 2 was a publicly traded Washington corporation with its principal place of
business in San Diego, California.  During the relevant period, Issuer 2’s common stock was
registered with the Commission pursuant to Section 12(b) of the Exchange Act and traded on the
New York Stock Exchange.  It filed annual reports with the Commission pursuant to Sections 13
and 15(d) of the Exchange Act.  Subsequent to the r elevant period, Issuer 2 completed a merger
with another company to form a new company under a different name.
21. Prime Broker 1 is a broker-dealer used by Sabby to maintain custody of the
securities of both the Warrant Fund and the Healthcare Fund.
22. Prime Broker 2 is a broker-dealer used by Sabby to maintain custody of the
securities of both the Warrant Fund and the Healthcare Fund.
23. Executing Broker-Dealer A is a broker-dealer used by Defendants to execute
trades on behalf of both the Warrant Fund and the Healthcare Fund.
 BACKGROUND ON REGULATION SHO
24. Regulatory requirements applicable to short sales of equity securities are
generally found in Regulation SHO, 17 C.F.R. § 242.200 – § 204.204, which the Commission
adopted to address its concerns regarding persistent fails to deliver and potentially abusive
“naked” short selling.  A “naked” short sale generally refers to selling short without having
borrowed or arranged to borrow securities to make delivery to the buyer within the standard

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settlement period.  All sellers of securities should promptly deliver, or arrange for delivery of,
securities and all buyers of securities have a right to expect prompt delivery of securities
purchased.  In enacting Regulation SHO, the Commission was concerned about the negative
effect that fails to deliver may have on the markets and shareholders.  For example, large and
persistent fails to deliver may deprive shareholders of the benefits of ownership, such as voting
and lending, and sellers that fail to deliver securities on the settlement date may attempt to use
this additional freedom to engage in trading activities to improperly depress the price of a
security.
TERMINOLOGY USED IN THIS COMPLAINT
Regulation SHO
25. Rule 200(g) of Regulation SHO requires broker-dealers to mark all sale orders of
equity securities as “long,” “short,” or “short exempt.”  17 C.F.R. § 242.200(g).
26. Before accepting a short sale order or effecting a short sale for its own account,
Rule 203(b)(1) of Regulation SHO requires (with very limited exceptions not applicable here) a
broker-dealer to locate the securities being sold; i.e., the broker-dealer must: (i) borrow the
securities; (ii) enter into a bona fide arrangement to borrow the securities; or (iii) have reasonable
grounds to believe that the securities can be borrowed so that they can be delivered on the date
delivery is due.  This provision is generally referred to as the “locate” requirement under
Regulation SHO.  The source of the locate must be documented.  Broker-dealers usually charge
customers a fee for borrowing securities.
27.       Ownership of a security convertible into, or exchangeable for, the security being

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sold, is not a borrow or arrangement to borrow the security being sold.  Ownership of a security
convertible into, or exchangeable for, the security being sold would also not provide reasonable
grounds to believe the security being sold can be borrowed.
Deemed to Own
28. Under Regulation SHO, a seller is “deemed to own” a security only if it has a net
long position in a security.  17 C.F.R. § 242.200(c).
29. A seller may be deemed to own a security if, for example, (i) the person
purchased, or has entered into an unconditional contract, binding on both parties thereto, to
purchase it, but has not yet received the security; or (ii) the person owns a security convertible
into or exchangeable for it and has tendered such security for conversion or exchange.
30.       For purposes of order marking rules under Regulation SHO, a seller of
convertible securities (i.e., other securities that are convertible into the underlying stock being
sold) is not “deemed to own” the underlying common stock until the seller has tendered such
convertible security for conversion or exchange.
Short Selling
31.          A “short sale” is the sale of a security that the seller does not own or any sale
that is consummated by the delivery of a security borrowed by, or for the account of, the seller.
In order to deliver the security to the purchaser, the short seller will borrow the security, typically
from a broker-dealer or an institutional investor.  The short seller later closes out the position by
purchasing equivalent securities on the open market, or by using an equivalent security it already
owned, and returning the security to the lender.  In general, short selling is used to profit from an
expected downward price movement, to provide liquidity in response to unanticipated demand,
or to hedge the risk of a long position in the same security or in a related security.

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32. Ordinarily (except in very limited circumstances not applicable here), sellers must
“locate” shares prior to selling short.
Naked Short Selling
33. In a “naked” short sale, a seller does not borrow or arrange to borrow securities
intime to make delivery to the buyer within the standard settlement period.
Long Selling
34. “Long selling” occurs when the seller owns the security being sold and has a
reasonable expectation that he can deliver the security in time for settlement.
35.  Under Regulation SHO, an order to sell may be marked “long” only if two
conditions are met.  First, the seller must be “deemed to own” the security pursuant to Rule
200(a) through (f) of Regulation SHO.  17 C.F.R. § 242.200.  A seller is deemed to own a
security only to the extent that it has a net long position in a security.  Second, to mark a sale
long, the broker-dealer must either: (i) have possession or control of the security to be delivered;
or (ii) reasonably expect that the security will be in its physical possession or control no later
than the settlement of the transaction.  17 C.F.R. § 242.200(g).  If a seller does not deliver the
security in time for settlement, a buyer may not get what it purchased in a timely manner,
eroding trust and confidence in the markets, and potentially depriving market participants of the
benefits of their bargain.
Failure to Deliver
36.     Regulation SHO was designed, in part, to reduce “failures to deliver,” which
occur when a seller fails to deliver securities that it has sold by the settlement date.  Failures to
deliver may negatively impact the market and shareholders.  See Amendments to Regulation
SHO, Exch. Act Rel. No. 34-60388 (July 27, 2009).  Further, sellers that fail to deliver securities

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on the settlement date may, as here, attempt to use this additional freedom to engage in trading
activities to depress improperly the price of a security.  See id. at 6-7.  Further, by not borrowing
securities and, therefore, risking that it will not be able to make delivery within the standard
settlement period, the seller benefits by not incurring the costs of borrowing shares.
FACTUAL ALLEGATIONS
I. SABBY’S OPERATIONS
37.     As managing partner of Sabby, Mintz had primary responsibility for making
investment decisions for the Private Funds.  Sabby’s investment strategy involved, in part,
participating in secondary offerings by issuers, which frequently included common stock and/or
convertible securities of the issuer.
38.    Mintz also had primary responsibility under Sabby’s policies and procedures for
knowing whether the Private Funds had a net short or long position in an issuer’s stock and
whether each sale of an issuer’s stock was a short sale or a long sale.  In addition, he was
responsible for ensuring that Sabby’s trading records were consulted in order to confirm this
information before submitting any trades.
39.     In particular, before a short sale order could be placed, Sabby’s policies and
procedures required Mintz or his trading designee to consult Sabby’s trading records, including
(i) a list of available locates provided on a daily basis from Prime Broker 1 (“Locate Availability
List”); (ii) Sabby’s trading log to see how many shares of the issuer had been sold short so far
that day; and (iii) short sales executed through brokers not reflected in Sabby’s trading log.
40.      Mintz was also responsible for reporting any instance where a locate was not
properly obtained, for reviewing all short sale reports for accuracy, and for ensuring that all
orders, including short sale orders, were marked correctly.

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II. VIOLATIVE SHORT SELLING IN THE SECURITIES OF ISSUER 1

41. In June 2018, Defendants engaged in a scheme to circumvent Regulation SHO
requirements in connection with the short sales of millions of shares of the common stock of
Issuer 1.  As more fully described below, Defendants’ scheme including short selling without
having locates in place and naked short selling in which they not only failed to have locates but
also failed to timely deliver the securities being sold.  Defendants’ goals were two-fold.  First,
Defendants knowingly or recklessly used their violative short selling to push down artificially
the price of Issuer 1’s stock so that Defendants could lower the price at which Defendants were
able to exercise their Issuer 1 convertible securities, thus obtaining more stock upon conversion.
42.       Second, regardless of whether Defendants succeeded in driving down Issuer
1’s stock price by their improper short selling, Defendants knew or were reckless in not knowing
they could profit additionally from selling Issuer 1’s stock in violation of Regulation SHO’s
locate requirements.  As set forth more fully below, their fraudulent trading scheme worked as
follows:  first, they entered into a securities purchase agreement with Issuer 1 on behalf of the
Warrant Fund that, for a brief period, effectively allowed Defendants to exercise convertible
preferred securities in exchange for Issuer 1’s stock at an approximately 20% discount to the
market price.  Then, prior to exercising the convertible securities, they entered short sales orders
without first obtaining a locate, circumventing Regulation SHO.  Almost immediately after those
short sales, they executed their conversion rights to acquire Issuer 1 stock and attempted, albeit
unsuccessfully, to use those shares to cover their short sales.  In this manner, Defendants locked
in an approximate 20% spread.  In other words, by short selling without first obtaining a locate,
they effectively were able to sell at market price and then acquire the shares at a 20% discount to
market price, earning substantial illicit proceeds.  Defendants would not have been able to do this

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if they had followed the rules that required locates for their short sales because they would not
have been able to obtain locates in sufficient quantity, if at all.
43.      As part of the scheme, Defendants knowingly or recklessly submitted
materially false and misleading order instructions to executing broker-dealers for the long sale of
millions of shares of Issuer 1’s common stock on behalf of the Warrant Fund when it did not
have a net long position in the stock.  Defendants also submitted order instructions for the short
sale of millions of shares of Issuer 1’s common stock on behalf of the Warrant Fund while
knowingly or recklessly making materially false and misleading representations to executing
broker-dealers that, through their prime brokers, Defendants had obtained locates for Issuer 1’s
common stock in connection with the short sales.
44. After making these materially false and misleading statements in connection with
their short sales, Defendants tendered for conversion millions of shares of convertible Issuer 1
securities.  As described more fully below, the fraudulent scheme allowed Defendants to
generate hundreds of thousands of dollars in ill-gotten gains for the Warrant Fund and led to
Defendants’ failure to deliver millions of shares of Issuer 1.
Defendants’ Fraudulent Trading and Ill-gotten Profits
45. In April 2018, Defendants, on behalf of the Warrant Fund, entered into a
securities purchase agreement with Issuer 1 through which Defendants acquired preferred
securities that could be converted into Issuer 1’s common stock at a conversion price of $0.46
per share.  The agreement contained a provision that, on June 25, 2018, the conversion price of
the preferred securities would be adjusted to 80% of the volume-weighted average price
(“VWAP”) of Issuer 1’s common stock on the preceding trading day, June 22, 2018 (“the reset
provision”).

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46. The reset provision gave Defendants a financial incentive to push down the price
of Issuer 1’s common stock before June 22, 2018 in order to receive more common stock upon
conversion.
47. This was a strategy Defendants had employed previously and which Mintz
explained in a February 2018 exchange with a representative of an executing broker-dealer in
connection with Defendants’ trading in another security:
MINTZ: the deal that was just done that had a pricing mechanism
MINTZ: that I made
MINTZ: that for 5 days
MINTZ: we got the lowest daily vwap [volume-weighted average price] minus 10%
MINTZ: so incentive was to sell as much as possible
MINTZ: during that point
MINTZ: set a low price
MINTZ: for our shares and warrants
MINTZ: then let it go back up
MINTZ: to monetize the warrants
MINTZ: that we got at 5.3c
MINTZ: stock was 40c predeal
MINTZ: so now that pricing is set
MINTZ: not going to be slamming stock

48. With two trading days remaining before the reset provision took effect,
Defendants intentionally began naked short selling Issuer 1’s common stock, putting downward
pressure on Issuer 1’s stock price.
49. On June 21, 2018, the Warrant Fund began the day with a net long position of 286
shares of Issuer 1’s common stock.  Defendants knew or were reckless in not knowing about the
Warrant Fund’s net long position, as it was reflected in Sabby’s contemporaneous trading
records, and Sabby’s policies required Mintz to know this information before placing trades.
Throughout the day, Defendants, on behalf of the Warrant Fund, submitted to executing broker-
dealers materially false and misleading order instructions for the long sale of 1,126,033 shares

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of Issuer 1’s common stock that executed at prices between approximately $0.29 and $0.33 per
share.
50. Defendants knew, or were reckless in not knowing, that the sale of all but 286
shares should have been marked as short sales because the Warrant Fund did not have a
sufficient net long position in the common stock of Issuer 1 at the time Defendants submitted
the orders.
51. That same day, June 21, 2018, Defendants, on behalf of the Warrant Fund,
submitted order instructions to executing broker-dealers for the short sale of an additional
569,184 shares of Issuer 1’s common stock that executed at prices between approximately $0.29
and $0.30 per share.  Defendants f alsely represented to the executing broker-dealers that
Defendants had obtained locates for Issuer 1’s common stock in connection with these short
sales.  At the time, Defendants knew or were reckless in not knowing that they had not located
any shares available to be borrowed, as reflected in Sabby’s contemporaneous trading records.
52. Defendants’ trading comprised 52% of trading in Issuer 1’s common stock on
June 21, 2018, and the price of Issuer 1’s stock fell from $0.34 to $0.29 per share over the
course of the day, a 14.7% drop
53. On June 22, 2018, the Warrant Fund began the day with a net short position in
Issuer 1’s common stock of 1,694,931 shares.  Throughout the day, Defendants, on behalf of the
Warrant Fund, submitted to executing broker-dealers order instructions for the long sale of
3,288,203 shares of Issuer 1’s common stock that executed at prices between approximately
$0.18 and $0.34 per share.  As Defendants knew or were reckless in not knowing, these
instructions were materially false and misleading in designating the sales as “long” sale orders,

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rather than short sales, because the Warrant Fund did not have a net long position in Issuer 1’s
common stock at the time Defendants submitted the orders.
54. That same day, June 22, 2018, Defendants, on behalf of the Warrant Fund,
submitted to executing broker-dealers order instructions for the short sale of an additional
3,991,688 shares of Issuer 1’s common stock that executed at prices between approximately
$0.19 and $0.33 per share.  Defendants made materially false and misleading representations to
the executing broker-dealers in the order instructions that Defendants had obtained locates for
Issuer 1’s common stock in connection with these short sales, when Defendants knew or were
reckless in not knowing that they had not located   any shares available to be borrowed, as
reflected in Sabby’s contemporaneous trading records.
55. Defendants’ trading comprised 42% of trading in Issuer 1’s common stock on
June 22, 2018, and the price of Issuer 1’s stock fell from $0.31 to $0.19 per share over the
course of the day, a 38.7% drop.  After Defendants’ trading on June 21 and 22, 2018, the
Warrant Fund had a net short position of 8,974,822 shares in Issuer 1’s stock.
56. After the close of trading markets on June 22, 2018, Defendants calculated the
adjusted conversion rate for the Warrant Fund’s Issuer 1 preferred securities – based on 80% of
VWAP on June 22, 2018 – to be $0.1779 per share, down from the original rate of $0.46 per
share.
57. At or around 5:31 PM

Eastern Time on June 22, 2018, Defendants, on behalf of
the Warrant Fund, submitted a conversion notice to Issuer 1 to convert $1,797,017 worth of
preferred securities into 10,101,280 shares of Issuer 1 common stock at a conversion rate of
$0.1779 per share.  The effective date of the conversion was June 25, 2018.

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58. Defendants intended to use these shares to satisfy the delivery obligations for their
June 21 and 22, 2018 sales of Issuer 1 common stock and to try to conceal their violative short
sales for which they had failed to obtain locates.  However, as Defendants knew or were
reckless in not knowing all along, the use of these converted shares to cover their sales would
not and did not in any way cure their violative trading.  Delivery of those shares did not cure the
fact that they had mismarked their trades as long sales when they were not “deemed to own” the
shares or did not have a net long position in Issuer 1 at the time they submitted the mismarked
orders.  Similarly, delivery of those shares did not cure their violations of the locate
requirements of Regulation SHO because they had placed short sales without actually having
obtained a locate, and as Defendants knew or were reckless in not knowing, they could not use
the fact that they held convertible securities that could be exchanged for Issuer 1 stock to satisfy
the locate requirement.
59. If Defendants had converted $1,797,017 worth of Issuer 1 preferred securities
prior to the adjustment of the conversion rate, effective June 25, 2018, the conversion would
have yielded only 3,906,560 shares of Issuer 1 common stock.  Instead, by tendering the
convertible securities after Issuer 1’s stock price plummeted by over 60% and the conversion
rate was adjusted downward, Sabby’s conversion of $1,797,017 worth of preferred securities at
the price of $0.1779 per share resulted in approximately 10.1 million shares of common stock.
60. Beyond the additional shares Defendants obtained from the decline in   Issuer 1’s
stock price between June 21 and June 22, Defendants locked in a 20% profit through their short
selling without obtaining locates in violation of the requirements of Rule 203(b)(1) of
Regulation SHO.  As explained above, the conversion price of Defendants’ preferred Issuer 1
securities was adjusted downward to 80% of VWAP on June 22, 2018, effectively giving

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Defendants a right to convert these securities in exchange for Issuer 1 stock at an approximate
20% discount to the market price.  Defendants knowingly or recklessly chose to sell short shares
of Issuer 1 on June 21 and 22 without obtaining locates, and, immediately after those sales,
Defendants exercised their conversion rights in exchange for the Issuer 1 shares needed to cover
their short sales.  Through this fraudulent scheme, Defendants, in effect, sold short shares of
Issuer 1 at market price and subsequently acquired shares at an approximate 20% discount to
the market price, earning substantial illicit proceeds of $480,000 for the Warrant Fund.
Defendants profited personally in connection with this trading from the management and
performance fees they obtained from managing the Warrant Fund.  As well, Mintz profited from
his ownership interest in the Warrant Fund.
Defendants’ False and Misleading Statements to Executing Broker-Dealer A
61. Defendants made repeated material misrepresentations to Executing Broker-
Dealer A and engaged in other deceptive conduct described below to try to conceal their illegal
trading.  Defendants knew or were reckless in not knowing that Executing Broker-Dealer A
relied on their false and misleading statements in executing their abusive naked short sales.
62. Between June 21 and 22, 2018, Defendants made repeated misrepresentations to
Executing Broker-Dealer A regarding their orders for the sale of Issuer 1’s securities.  After
Defendants’ initial submission on June 21, 2018, of false and misleading order instructions to
Executing Broker-Dealer A for the long sale of one million shares of Issuer 1, Mintz had a
telephone call with representatives of Executing Broker-Dealer A.  In response to questioning by
the representatives of Executing Broker-Dealer A about the validity of how the trade was
marked, Mintz conceded that the improperly marked long sale should have been marked as a
short sale, which Executing Broker-Dealer A changed to a short sale order for one million shares

19

of Issuer 1.  Subsequently, Defendants withdrew a second false long sale order and resubmitted
the order as a short sale order for one million shares of Issuer 1.  By designating the sales as
short sales, however, Defendants were obligated under Regulation SHO to obtain a locate.
63. Later, on June 21, 2018, a representative of Executing Broker-Dealer A made
multiple requests to Defendants to confirm the source of their locate for both one million short
sales orders.  Initially, Mintz falsely stated that the locate for the first order was provided by
Prime Broker 1, and that the locate for the second order was provided by Prime Broker 2.  Later
that day, he reversed and falsely stated that Prime Broker 2 provided the locate for the first order
and Prime Broker 1 provided the locate for the second.
64. Because Sabby’s policies required Mintz to verify a security’s locate availability
before short selling and, as reflected in Sabby’s contemporaneous trading records, there were no
locates, Mintz knew or was reckless in not knowing that neither prime broker had locates
available for any shares of Issuer 1.
65. On the morning of June 22, 2018, a Director of Compliance of Executing Broker-
Dealer A sent an email to Sabby requesting contact information for Prime Broker 1 and Prime
Broker 2 or, alternatively, documentation confirming that Defendants had obtained locates from
Prime Broker 1 and Prime Broker 2 in connection with Defendants’ short sales.
66. Later that day, the Director of Compliance of Executing Broker-Dealer A
attempted to speak with a representative of Sabby, but their call was disconnected.  Shortly after
the call, at around 12:30 PM, the Director of Compliance of Executing Broker-Dealer A sent an
email to Defendants again demanding documentation of the locates or documentation showing
that Defendants had tendered the preferred securities of Issuer 1 for conversion prior to
submitting the short sale orders.

20

67. At or around 6:06 PM on Friday, June 22, 2018, in an attempt to mislead
Executing Broker-Dealer A on the sequence of events, a representative of Sabby sent an email
to the Director of Compliance of Executing Broker-Dealer A that included a copy of Sabby’s
conversion notice tendered to Issuer 1 at or around 5:31 PM, well after Defendants had
submitted the short sale orders.
68. Upon reviewing this email on Monday, June 25, 2018, the Director of
Compliance of Executing Broker-Dealer A recognized that the conversion notice failed to
satisfy his request for documentation of Defendants’ locates or documentation showing that
Defendants had tendered the preferred securities of Issuer 1 for conversion prior to submitting
the short sale orders.  Subsequently, on June 25, 2018, the Director of Compliance sent another
email to Defendants requesting evidence of locates prior to the sales.  Defendants ignored this
request.
69. On the morning of June 26, 2018, a representative of Executing Broker-Dealer A
sent another email to Defendants, renewing the Director of Compliance’s request for
documentation.  Shortly after, a representative of Sabby responded by email, stating, “Shares
will be delivered today. Thank you for your patience.”
70. However, Defendants failed to deliver shares of Issuer 1’s common stock until
June 28, 2018, and failed to satisfy their settlement obligation in connection with their short
sales of Issuer 1’s common stock on June 21 and 22, 2018.  As a result of this late delivery, by
June 27, 2018, the Warrant Fund’s abusive naked short sales caused fails-to-deliver of
approximately nine million shares of Issuer 1.
71. In testimony, Mintz has admitted that he was aware: (1) of the Warrant Fund’s
opening position in the common stock of Issuer 1 on June 21 and 22, 2018 at the time of the

21

relevant trades (i.e., that the Warrant Fund had only 286 shares of Issuer 1 on June 21 and a net
short position of 1,694,931 shares on June 22); (2) that Defendants had not tendered for
conversion the convertible securities prior to placing the trades; and (3) that Defendants’ trades
in Issuer 1 were mismarked.
III. VIOLATIVE SHORT SELLING IN THE SECURITIES OF ISSUER 2
72. In January 2018, Defendants engaged in a fraudulent scheme to circumvent
Regulation SHO by selling short tens of thousands of shares of Issuer 2’s common stock without
obtaining locates.  As more fully described below, Defendants intended to profit by short selling
Issuer 2’s common stock without obtaining locates and subsequently acquiring the common
stock of Issuer 2 at a cheaper price than if they had followed the locate requirements of Rule
203(b)(1) of Regulation SHO.
73. Between January 8 and 9, 2018, Defendants submitted instructions to executing
broker-dealers for the short sale of Issuer 2’s common stock on behalf of the Private Funds while
knowingly or recklessly making materially false and misleading representations that they had
obtained locates for shares of Issuer 2’s common stock in connection with these short sales.
74. After submitting the violative short sale orders, on January 10, 2018, Defendants
entered into a securities purchase agreement with Issuer 2 through which Defendants, on behalf
of the Private Funds, acquired one million shares of Issuer 2’s common stock.  Defendants
attempted to use these shares to satisfy the delivery obligations and conceal t heir failure to have
obtained locates for their short sales, but the shares were not delivered until January 12, 2018,
and Defendants caused fails-to-deliver of thousands of shares of Issuer 2.  As Defendants knew
or were reckless in not knowing, the use of after-acquired shares to cover their short sales for

22

which they had not obtained a locate at the time of their short sale order could not cure their
failure to comply with the locate requirements of Rule 203(b)(1) of Regulation SHO.
The January 8 and 9, 2018 Trading
75. On January 8, 2018, the Warrant Fund and the Healthcare Fund began the day
with net short positions in Issuer 2 of 49,333 and 60,870 shares, respectively, as reflected in
Sabby’s contemporaneous trading records.
76. At 6:30 AM Eastern Time on that day, Defendants were informed by Prime
Broker 1 that their request for a 250,000 share locate for Issuer 2’s shares was denied.
77. Notwithstanding this denial, at 8:38 AM, Defendants knowingly or recklessly
submitted to an executing broker-dealer two short sale orders – a short sale of 14,147 shares of
Issuer 2 on behalf of the Warrant Fund and another short sale of 14,148 shares of Issuer 2 on
behalf of the Healthcare Fund, for a total of 28,295 shares of Issuer 2 to be sold short.
78. As part of the order instructions, Defendants falsely represented to the executing
broker-dealer that Prime Broker 2 had provided a locate in connection with the short sales.  As
Defendants knew or were reckless in not knowing, at the time of the order,  no locate had been
provided to Defendants by either Prime Broker 1 or Prime Broker 2.
79. At 9:31 AM, Defendants again requested a locate from Prime Broker 1 and were
denied.
80. At 9:32 AM, however, Prime Broker 2 granted Defendants a locate for 30,000
shares of Issuer 2.  While enough to cover the earlier aggregate 28,295 short sale order of Issuer
2’s shares on behalf of the Private Funds, the locate was untimely given that it was granted after
the short sale orders had been placed.

23

81. At 12:23 PM, Prime Broker 2 granted Defendants an additional locate for 25,000
shares of Issuer 2.  Defendants immediately submitted two short sale orders to an executing
broker dealer for 25,000 shares on behalf of each Fund, for a total of 50,000 shares to be sold
short.  As Defendants knew or were reckless in not knowing, while Prime Broker 2’s 25,000
share locate was sufficient to cover one of the Fund’s short sales, it was insufficient to cover
both.
82.  At 4:40 PM, Defendants submitted a third short sale order instruction to an
executing broker-dealer on behalf of the Healthcare Fund for yet an additional 25,000 shares of
Issuer 2.  However, only 2,594 shares were actually sold at $1.95 per share.  As part of the order
instructions, Defendants again falsely represented that Prime Broker 2 had provided a locate in
connection with the short sales, even though they knew or were reckless in not knowing that the
locates provided by Prime Broker 2 were insufficient to cover Defendants’ short sales.
83. By placing short sale orders prior to receiving any locates or without sufficient
locates, and then failing to deliver shares on a timely basis, Defendants naked short sold 25,889
shares of Issuer 2.
84. On January 9, 2018, the Warrant Fund and the Healthcare Fund began the day
with net short positions of 88,480 and 102,615 shares, respectively, i n   Issuer 2.
85. As had occurred on the previous day, Defendants were informed at 6:30 AM by
Prime Broker 1 that their request for a locate of 250,000 shares of Issuer 2 was denied.
86. At 7:54 AM, Defendants requested a locate for Issuer 2’s shares from Prime
Broker 2 and were also denied.
87. At 7:57 AM, Defendants submitted another request to Prime Broker 1 and were
granted a locate of 5,000 shares of Issuer 2.

24

88. At 8:00 AM, a Sabby employee informed Mintz that a locate for 5,000 shares of
Issuer 2 had been granted.
89. Despite knowing that only 5,000 shares of Issuer 2 had been located, at 8:02 AM
Defendants submitted to an executing broker-dealer order instructions to sell short 450,000
shares of Issuer 2 without sufficient locates on behalf of the Healthcare Fund, resulting in the
sale of 1,400 shares that executed at prices between $1.50 and $1.80 per share.
90. At the same time, Defendants submitted a separate order on behalf of the Warrant
Fund for the short sale of 250,000 shares without sufficient locates to an executing broker-
dealer, resulting in the sale of 1,674 shares that executed at approximately $1.52 per share.
91. In the instructions for both orders, Defendants misleadingly identified Prime
Broker 1 as the source of the locate for the 450,000 short sale order and the 250,000 short sale
order, even though Defendants knew or were reckless in not knowing that Prime Broker 1 had
only provided a limited locate of 5,000 shares.
92. At 11:02 AM, a Sabby employee informed Mintz that the Warrant Fund and
Healthcare Fund had not obtained any additional locates for Issuer 2’s securities.  Despite
knowing this, Defendants nevertheless submitted additional order instructions to executing
broker-dealers for short sales in Issuer 2’s stock between 12:41 PM and 1:21 PM.  In the order
instructions, Defendants again, acting knowingly or recklessly, falsely represented that Prime
Broker 1 had provided locates.  These orders resulted in 35,216 shares sold short by Defendants,
with no locate, that executed at a price of approximately $1.52 per share.
93. On the following day, January 10, 2018, Defendants, on behalf of the Private
Funds, entered into a securities purchase agreement with Issuer 2 to buy one million shares of
the company’s common stock at $1 per share.  Defendants attempted to use these shares to

25

settle their short sales without locates executed on January 8 and 9, 2018.  However, as
Defendants knew or were reckless in not knowing, regardless of the subsequent securities
purchase agreement, Defendants did not have sufficient locates at the time of their short sale
orders and their trades were in violation of the locate requirements of Regulation SHO.
94. Despite trying to use the securities obtained through the securities purchase
agreement to settle their short sales, by January 11, 2018, Defendants’ short sales in Issuer 2
caused fails-to-deliver of at least 33,000 shares of Issuer 2.
95. As described above, Defendants naked sold short over 30,000 shares of Issuer 2
that were executed at prices between $1.50 and $1.95 per share, and subsequently purchased
Issuer 2 shares at a price of $1 per share.  By naked short selling Issuer 2’s common stock at
market price and subsequently acquiring shares of Issuer 2 through the securities purchase
agreement at a substantially cheaper price per share, Defendants gained ill-gotten proceeds of
approximately $134,000, and net profits of $49,000 for the Private Funds.  Defendants profited
personally in connection with this trading from the management and performance fees they
obtained from managing the Private Funds.  As well, Mintz profited from his ownership interest
in the Private Funds.
IV. ADDITIONAL ABUSIVE TRADING
96. Defendants engaged in similar abusive trading in the securities of at least eight
additional issuers.
97. The frequency of Defendants’ abusive trading and the similarity of the
misconduct across Defendants’ trading, as well as Sabby’s prior history of short sale violations
in connection with Rule 105 of Regulation M, demonstrate that these violations were not errors,
but, in fact, part of a fraudulent scheme to circumvent trading rules.

26

98. Defendants’ additional abusive trading, the details of which are set forth more
fully in Appendix A to this Complaint, took place between March 15, 2017 and May 6, 2019.  As
set forth in Appendix A, in each instance, Defendants knowingly or recklessly either submitted
(a) materially false and misleading trade order instructions to executing broker-dealers for long
sales on behalf of the Private Funds when the Private Funds did not have a net long position in
the security and were not deemed to own the securities; or (b) submitted short sale trade
instructions to executing broker-dealers for short sales on behalf of the Private Funds while
making materially false and misleading representations that Defendants had obtained locates in
connection with the short sales when in fact they had not obtained locates.
99. Defendants engaged in this fraudulent trading scheme because it was profitable to
do so and more profitable than following the requirements of Regulation SHO.  Defendants
profited from the difference between the higher price of their abusive sales (naked short sales;
short sales without locates; and/or mismarked long sales) and the cheaper price they
subsequently paid to acquire the stock or exercise convertible securities in exchange for stock.
Had Defendants complied with the applicable trading rules – including owning a security before
submitting a long sale order or borrowing or locating a security before submitting a short sale
order – they would not have secured the same profits.  As a result of their fraudulent scheme,
Defendants obtained at least $2 million in illegal trading profits for themselves and the Private
Funds.
V. SABBY’S INADEQUATE BOOKS AND RECORDS

100. Pursuant to Section 204 of the Advisers Act [15 U.S.C. § 80b-4] and Rule 204-2
thereunder [17 C.F.R. § 275.204-2]  , Sabby, as an investment adviser, was required to make and
keep certain books and records related to its advisory business.  Among other records, Rule 204-

27

2 requires investment advisers to keep accurate records relating to orders to purchase or sell any
security.
101. During the relevant period, Sabby failed to keep accurate books and records with
respect to certain orders to sell securities, as detailed above, when Defendants mismarked those
sales as long when those sales should have been marked as short and when Defendants
represented in their order instructions that they had obtained locates for short sales, when in fact
Defendants had not.
102. Mintz, having primary oversight over investment decisions, including daily
securities trading decisions, for the Private Funds, was responsible for the entry of these
inaccurate orders and knew or was reckless in not knowing that the information was false, and
as such, aided and abetted Sabby’s violations.
VI. SABBY’S INADEQUATE COMPLIANCE POLICIES AND
PROCEDURES

103. Pursuant to Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(4)] and Rule
206(4)-7 thereunder [17 C.F.R. § 275.206(4)-7], Sabby was required to have policies and
procedures reasonably designed to prevent violations of the Advisers Act and to implement
those policies and procedures.
104. However, during the relevant period, Sabby failed to enforce and otherwise
implement
 compliance with its existing procedures, including those designed to ensure accurate
books and records.  As alleged above, Defendants continuously mismarked short sale orders as
long sales and inaccurately represented in their order instructions that they had locates for short
sales when they did not.
105. Sabby’s policies and procedures relating to Regulation SHO assigned Mintz, or
his trading designee, responsibility for determining whether the Private Funds had a net long or

28

short position in a security.  This responsibility included determining prior to each sale whether
it was a long or short sale.
106. Under Sabby’s policies and procedures, Mintz was responsible as well for
ensuring that Sabby’s locate availability list, trading log, and other trading records were
consulted before execution of any trades, and Mintz was responsible for reporting any instance
where a locate was not properly obtained, for reviewing all short sale reports for accuracy, and
for ensuring that all orders, including short sale orders, were marked correctly.
107. Mintz, however, failed to implement and comply with these procedures and
continuously created inaccurate trading records and submitted mismarked trades.  He therefore
aided and abetted Sabby’s compliance failures, including those related to its inadequate books
and records.
108. For its part, Sabby failed to implement procedures to ensure that Mintz complied
with his obligations as set forth above and thus prevent violations of the Advisers Act
THIS ACTION IS TIMELY FILED
109. Defendants agreed to toll any statute of limitations applicable to the claims
alleged herein during the period from December 2, 2022 through March 22, 2023 and the period
from March 30, 2023 through June 30, 2023.

CLAIMS FOR RELIEF

First Claim for Relief
Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder
(Against Mintz and Sabby)

110. Paragraphs 1 through 109 are realleged and incorporated by reference.
111. Defendants directly or indirectly, singly or in concert with others, in connection
with the purchase or sale of any security, with scienter, using the means or instrumentalities of

29

interstate commerce, or of the mails, or of a facility of a national securities exchange: (a)
employed devices, schemes, or artifices to defraud; (b) made untrue statements of material facts
and omitted to state material facts necessary in order to make the statements made, in the light of
the circumstances under which they were made, not misleading; and/or (c) engaged in acts,
practices, and courses of business which operated or would have operated as a fraud or deceit
upon others, including, but not limited to engaging in the fraudulent scheme described herein,
including the knowing or reckless circumventing of Regulation SHO through mismarking orders,
failing to obtain locates for short sales and failing to timely deliver shares as required by
applicable rules, and submitting materially false and misleading order instructions and making
other false and misleading statements to executing broker-dealers as described in paragraphs 41
through 99.
112. By reason of the foregoing, Defendants violated and, unless restrained and
enjoined, are reasonably likely to continue to violate Section 10(b) of the Exchange Act [ 15
U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]  .
Second Claim for Relief
Violations of Section 10(b) of the Exchange Act and Rule 10b-21 Thereunder
(Against Mintz and Sabby)

113. Paragraphs 1 through 109 are realleged and incorporated by reference.
114. The common stock of Issuer 1 and Issuer 2 are each a “security” within the
meaning of Section 3(a)(10) of the Exchange Act [15 U.S.C. § 78c(a)(10)] and are each an
“equity security” within the meaning of Section 3(a)(11) of the Exchange Act [15 U.S.C. §
78c(a)(11)].
115. Defendants directly and indirectly, singly or in concert, knowingly or recklessly,
in connection with the purchase and sale of securities, by use of the means and instrumentalities

30

of interstate commerce, or of the mails or of the facilities of a national securities exchange, have
submitted an order to sell an equity security while deceiving a broker or dealer, a participant of a
registered clearing agency, or a purchaser about their intention or ability to deliver the security
on or before the settlement date, and failed to deliver the security on or before the settlement
date, including, but not limited to Defendants’ sales of Issuer 1’s securities described in
paragraphs 41 through 71 and Issuer 2’s securities described in paragraphs 72 through 95.
116. By reason of the foregoing, Defendants, directly or indirectly, singly or in concert,
have violated and, unless restrained and enjoined, are reasonably likely to continue to violate
Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-21 thereunder [17 C.F.R. §
240.10b-21].
Third Claim for Relief
Violations of Section 204 of the Advisers Act and Rule 204-2 Thereunder
(Against Sabby)

117. Paragraphs 1 through 109 are realleged and incorporated by reference.
118. During the relevant period, Sabby acted as investment adviser to the Private
Funds.
119. Accordingly, Sabby was legally obligated to “make and keep true, accurate and
current” books and records prescribed by the Commission relating to Sabby’s investment
advisory business and to “furnish such copies” of those records as the Commission requires,
pursuant to Section 204(a) of the Advisers Act [15 U.S.C. § 80b–4] and Rule 204-2 thereunder
[17 C.F.R. §§ 275.204-2].
120. Sabby, by use of the mails and the means and instrumentalities of interstate
commerce, directly or indirectly, created and maintained false books and records when, as
described above, Defendants submitted mismarked orders to sell securities long when those

31

orders should have been marked as short sales and when Defendants falsely represented in the
order instructions that they had obtained locates for short sales, when in fact they had not.
121. By reason of the foregoing, Sabby, directly or indirectly violated and, unless
restrained and enjoined, is reasonably likely to continue to violate Section 204 of the Advisers
Act [15 U.S.C. § 80b-4]   and Rule 204-2 thereunder [17 C.F.R. §§ 275.204-2].

Fourth Claim for Relief
Violations of Section 206(4) of the Advisers Act and Rule 206(4)-7 Thereunder
(Against Sabby)

122. Paragraphs 1 through 109 are realleged and incorporated by reference.
123. Section 206(4) of the Advisers Act [15 U.S.C. §80b-6(4)] provides that it is
unlawful for an investment adviser to engage in an act, practice, or course of business which is
fraudulent, deceptive, or manipulative.  It further states that the SEC shall issue rules to define
and prescribe measures to prevent such misconduct.  Rule 206(4)-7 issued under the Advisers
Act [17 C.F.R. §275.206(4)-7] requires investment advisers to adopt and implement written
policies and procedures reasonably designed to prevent violations of the Advisers Act and its
rules.  Investment advisers must also review the adequacy of those policies and procedures and
the effectiveness of their implementation, at least annually.
124. As described in paragraphs 37 through 40, Sabby’s policies and procedures
assigned Mintz, or his trading designee, responsibility for determining whether the Private Funds
had a net long or short position in a security.  In addition, Mintz was responsible for consulting
Sabby’s trading records before trade execution, ensuring trades were marked properly, reviewing
short sale reports for accuracy, and reporting instances where a locate was not properly obtained.
125. Sabby, however, failed to implement, as well as enforce compliance with its
existing procedures, including those designed to ensure accurate books and records.  As alleged

32

above, Defendants, by use of the mails and the means and instrumentalities of interstate
commerce, directly or indirectly, continuously mismarked short sale orders as long sales and
inaccurately represented in their order instructions that they had locates for short sales when they
did not.
126. By reason of the foregoing, Sabby, directly or indirectly violated and, unless
restrained and enjoined, is reasonably likely to continue to violate Section 206(4) of the Advisers
Act [15 U.S.C. § 80b-6] and Rule 206(4)-7 thereunder [ 17 C.F .R . § 275.206(4)-7]  .
Fifth Claim for Relief
Aiding and Abetting Violations of Sections 204 and 206(4) of the Advisers Act and
Rules 204-2 and 206(4)-7 Thereunder
(Against Mintz)

127. Paragraphs 1 through 109 are realleged and incorporated by reference.
128. As a result of the conduct alleged herein, and in particular paragraphs 37 through
40 and paragraphs 100 through 108, Mintz aided and abetted Sabby’s violations of Sections 204
and 206(4) of the Advisers Act [15 U.S.C. §§ 80b-4 and 80b-6(4)] and Rules 204-2 and 206(4)-7
thereunder [17 C.F.R. §§ 275.204-2 and 275.206(4)-7] by knowingly or recklessly providing
substantial assistance to Sabby, which, while registered as an investment adviser under Section
203 of the Advisers Act [15 U.S.C. § 80b-3], by use of the mails and the means and
instrumentalities of interstate commerce, directly or indirectly, engaged in fraudulent, deceptive,
or manipulative practices or courses of business, and failed to adopt and implement written
policies and procedures reasonably designed to prevent violations of the Advisers Act and the
rules thereunder by Sabby and its supervised persons.
129. By reason of the foregoing, Mintz, directly or indirectly, aided and abetted, and,
unless restrained and enjoined, will again aid and abet violations of Sections 204 and 206(4) of

33

the Advisers Act [15 U.S.C. §§ 80b-4 and 80b-6(4)] and Rules 204-2 and 206(4)-7 thereunder
[17 C.F.R. §§ 275.204-2 and 275.206(4)-7].
PRAYER FOR RELIEF
 WHEREFORE, the Commission respectfully requests that this Court enter a judgment:
1. Finding that Mintz and Sabby violated the federal securities laws and regulations
alleged in this Complaint;
2. Permanently restraining and enjoining Mintz and Sabby from violating the federal
securities laws and regulations alleged in this Complaint;
3. Ordering Mintz and Sabby to disgorge all ill-gotten gains received as a result of
their unlawful conduct plus prejudgment interest thereon pursuant to Sections 21(d)(3), (d)(5),
and (d)(7) of the Exchange Act [15 U.S.C. § 78u(d)(3), (5), (7)];
4. Ordering Mintz and Sabby to pay civil penalties pursuant to Section 21(d)(3) of
the Exchange Act [15 U.S.C. § 78u(d)(3)] and/or Section 209(e) of the Advisers Act [15 U.S.C.
§ 80b-9(e)]; and
5. Granting such other and further equitable relief to the Commission as the Court
deems just and appropriate.

34

JURY TRIAL DEMAND
 Pursuant to Rule 38 of the Federal Rules of Civil Procedure, the Commission demands a
jury trial on all the issues so triable.
Dated: June 12, 2023     Respectfully submitted,

Of Counsel:     _s/_Daniel J. Maher_______________________
Amy L. Friedman    Daniel J. Maher ( Mass. Bar ID No. 654711)
Christopher R. Mathews   Edward J. Reilly (VA Bar ID No. 82562)
      U.S.
 SECURITIES AND EXCHANGE COMMISSION
      100 F Street NE
      Washington, DC 20549
      Phone: (202) 551-4737 (Maher)
      Email: [email protected] (Maher)

DESIGNATION OF AGENT FOR SERVICE UNDER LOCAL CIVIL RULE 101.1(f)

 In accordance with Local Civil Rule 101.1(f), the undersigned hereby makes the
following designation for the receipt of service of all notices or papers in this action at the
following address:
 United States Attorney’s Office
 District of New Jersey
 Attention: David E. Dauenheimer
 Deputy Chief, Government Fraud Unit
 970 Broad Street, Suite 700
 Newark, NJ 07102-2534

Dated: June 12, 2023

      Respectfully submitted,

      _s/_Daniel J. Maher_______________________
      Daniel J. Maher (Mass. Bar ID No. 654711)
      Edward J. Reilly (VA Bar ID No. 82562)
      U.S.
 SECURITIES AND EXCHANGE COMMISSION
      100 F Street NE
      Washington, DC 20549
      Phone: (202) 551-4737 (Maher)
      Email: [email protected] (Maher)

APPENDIX A
1

Issuer Fund(s)
Engaged in
Trading
Locates Number
of
Occasion
s Locates
Denied
Total Naked Short Sales Total Naked
Short Sales
Shares &
Proceeds
Profit After Acquiring
Shares For Delivery
Date Range Reset
Provision
Orders With False
Representations
Concerning
Locates
Short Sale Orders
Mismarked as
Long Sales
Issuer 1

Warrant
Fund and
Healthcare
Fund
  67,760 1,100 68,860
$438,578
$202,810 3/15/2017 –
3/17/2017
No
Issuer 2  Warrant
Fund and
Healthcare
Fund
  877,540 0 877,540
$1,470,521
$347,270 7/26/2017 No
Issuer 3  Warrant
Fund and
Healthcare
Fund
45  280,150 0 280,150
$727,818
$307,390.75 7/28/2017 –
7/31/2017
No
Issuer 4  Warrant
Fund
  0 381,642,544 381,642,544
$922,689
$204,169.89 6/25/2018 –
7/6/2018
No
Issuer 5  Warrant
Fund
  0 527,778

527,778
$412,241

$81,691 7/11/2018 –
7/12/2018
Yes.  Naked
short sold
400,150 shares
in advance of a
warrant
conversion
price reduction
effective July
12, 2018, and
exercised
warrants after
the conversion
price reduction.
Issuer 6  Warrant
Fund
  7,638,623 0 4,596,514
$329,597
$83,222 7/20/2018 –
7/23/2018
No

APPENDIX A
2

Issuer 7  Warrant
Fund
  210,939 0 196,262
$343,226
$341,184 2/25/2019 –
3/5/2019
No
Issuer 8  Warrant
Fund
  119,181 0 119,181
$944,101.
$345,242. 5/1/2019 –
5/6/2019
No

1 
 

Daniel J. Maher 
Edward J. Reilly 
U.S. SECURITIES AND EXCHANGE COMMISSION 
100 F Street NE 
Washington, DC 20549 
Phone: (202) 551-4737 (Maher) 
Email: [email protected] (Maher) 

 
UNITED STATES DISTRICT COURT 

DISTRICT OF NEW JERSEY 
           
U.S. SECURITIES AND EXCHANGE COMMISSION, :     
                     : 
                               Plaintiff,   : 
v.   : 
   : CASE NO. 2:23-CV-3201 
HAL D. MINTZ, and   : 
SABBY MANAGEMENT LLC,   : 
   :           JURY TRIAL  
   : DEMANDED   
   : 
                               Defendants.   : 
   : 
        : 

 
COMPLAINT 

 Plaintiff U.S. Securities and Exchange Commission (“Commission”), for its Complaint 

against defendants Hal D. Mintz (“Mintz”), whose last known address is 7012 Fisher Island 

Drive, Miami Beach, Florida 33109, and Sabby Management LLC (“Sabby”), whose last known 

address is 115 Hidden Hills Drive, Spicewood, Texas 78669 (collectively, “Defendants”), alleges 

as follows: 

SUMMARY 
 

1. This complaint arises from a long running fraudulent scheme involving abusive 

“naked” short selling, order mismarking, and other violative trading, orchestrated by Defendants 

Sabby Management LLC (“Sabby”), a registered investment adviser and recidivist, and its 

principal, Hal D. Mintz (“Mintz”).  From at least March 2017 through May 2019, Mintz, a highly 

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experienced trader, through Sabby, used his knowledge to game the markets and carry out 

Defendants’ fraudulent scheme by repeatedly circumventing trading rules involving at least 10 

issuers on behalf of two private funds managed by Defendants (“the Private Funds”).    

2. Defendants’ fraudulent scheme involved at least two forms of abusive trading.   

First, Defendants knowingly or recklessly mismarked sales of securities as “long” even though 

the sales did not qualify as long sales because the Private Funds did not own and were not 

deemed to own the securities being sold and did not have a net long position in the securities 

being sold.  As a result, Defendants should have marked those sales as “short.”  Failing to mark 

the sales correctly was a violation of applicable order marking rules.  Because Defendants’ sales 

were actually short sales that they tried to disguise as long sales, and Defendants had not 

“located” (i.e., borrowed, arranged to borrow, or had reasonable grounds to believe that the 

securities could be borrowed) the shares that they sold, the sales further failed to comply with the 

locate requirements of Regulation SHO.  17 C.F.R. § 242.200 – § 204.204.  Second, Defendants 

engaged in additional abusive trading in which they marked and sold shares “short” when they 

knew or were reckless in not knowing that they had not borrowed or located the shares.  These 

trades also failed to comply with the locate requirements of Regulation SHO.  Further, in each 

instance in which Defendants additionally failed to make timely delivery of shares, their trading 

also constituted “naked” short selling, which was a further violation of Regulation SHO, 

described in more detail below.    

3. Defendants engaged in this fraudulent trading scheme because it was more 

profitable than following the order marking and locate rules.  As explained in greater detail 

below, Defendants would not have been able to carry out their short sales, and thus could not 

have profited as they did, if they had followed the rules governing long and short sales.  As a 

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result of their misconduct, Defendants obtained at least $2 million in ill-gotten trading profits for 

themselves and the Private Funds.   

4. On occasion, Defendants additionally used their violative sales to deflate 

artificially the price at which Defendants were able to convert their securities into stock.  

Through these abusive sales, Defendants acquired more stock at a cheaper price.     

5. Defendants took multiple steps to conceal their fraudulent scheme and 

misconduct.  They knew or were reckless in not knowing their misconduct violated rules 

requiring traders to properly mark long sales and short sales and to obtain locates for short sales.  

Defendants repeatedly made false statements to the brokers executing their trades, including 

falsely representing that they had locates for their short sales when, in fact, they did not.  As 

well, Defendants repeatedly submitted fraudulent order instructions to the brokers, identifying 

their sales as “long” in an attempt to disguise their naked short sales and their short sales for 

which they had not obtained locates, when they knew that they were required to identify these 

orders as “short” sales.  But for these misrepresentations, the brokers would not have executed 

these trades since the trades failed to comply with Regulation SHO.  

6. In an additional attempt to hide their failure to obtain locates for their short sales 

and satisfy their settlement obligations, Defendants in some instances would acquire the required 

stock after their short sales, typically by purchasing the stock from the issuer or otherwise 

acquiring it through conversion of other securities.  Defendants knew or were reckless in not 

knowing that these practices failed to comply with applicable trading rules that require, with very 

narrow exceptions not applicable here, a short seller to locate the stock prior to the short sale.     

7. While Defendants were often able to conceal from the market their fraudulent 

trading scheme, on some occasions, Defendants were unable to deliver securities in time to 

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cover their short sales, causing “fails-to-deliver.”  Each instance in which Defendants’ 

mismarked long sales and shorts sales without locates resulted in fails-to-deliver, Defendants’ 

conduct also constituted naked short selling.   

8. As a result of the conduct described above and more fully below, Defendants 

violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 

78j(b)] and Rules 10b-5 and 10b-21 thereunder [17 C.F.R. § 240.10b-5 and 17 C.F.R. § 240.10b-

21].  Additionally, Sabby violated Sections 204 and 206(4) of the Investment Advisers Act of 

1940 (“Advisers Act”) [15 U.S.C. §§ 80b–4 and 80b–6] and Rules 204-2 and 206(4)-7 

thereunder [17 C.F.R. §§ 275.204-2 and 275.206(4)-7], and Mintz aided and abetted those 

violations.   

9. Without an injunction, Defendants are likely to continue to violate the federal 

securities laws.  

10. The Commission seeks permanent injunctions; disgorgement of ill-gotten gains 

derived from the conduct alleged in the Complaint plus prejudgment interest thereon; and civil 

money penalties.  

JURISDICTION AND VENUE 

11. The Commission brings this action pursuant to Sections 21(d) and 21(e) of the 

Exchange Act [15 U.S.C. §§ 78u(d) and 78u(e)] and Sections 209(d) and 209(e) of the Advisers 

Act [15 U.S.C. §§ 80b-9(d) and (e)].   

12. The Court has jurisdiction over this action pursuant to Sections 21(d) and 27 of 

the Exchange Act [15 U.S.C. §§ 78u(d) and 78aa] and Sections 209(d), 209(e), and 214 of the 

Advisers Act [15 U.S.C. §§ 80b-9(d), 80b-9(e), 80b-14].   

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13. In connection with the conduct alleged in this Complaint, Defendants, directly or 

indirectly, made use of the means or instruments of transportation or communication in 

connection with the transactions, acts, practices, and courses of business alleged herein.  

14. Venue is proper in the District of New Jersey pursuant to Section 27(a) of the 

Exchange Act [15 U.S.C. § 78aa(a)] and Section 214 of the Advisers Act [15 U.S.C. § 80b-14] 

because many of the acts and transactions constituting violations of the Exchange Act and the 

Advisers Act occurred in this district, including materially false and misleading order 

instructions and other materially false and misleading representations made to brokers.  In 

addition, during the relevant period, Sabby’s principal place of business was in this district. 

THE DEFENDANTS 

15. Hal D. Mintz, age 52, is a resident of Miami, Florida.  During the relevant period, 

he was the principal and managing partner of Sabby Management LLC and, at all times, had 

primary responsibility for making investment decisions, including daily securities trading 

decisions, for the Private Funds described below.  He has served in this capacity since the firm 

was established in 2011.  Because of his position, Sabby is liable for Mintz’ conduct alleged 

herein.  Mintz is a highly experienced, prolific trader and has worked in the securities industry 

since at least 1996.   

16. Sabby Management LLC, is a Delaware limited liability company established in 

2011.  During the relevant period, it maintained a principal office in Saddle River, New Jersey, 

and had approximately five employees.  It has been registered as an investment adviser with the 

Commission since July 12, 2013.  Its business consists primarily of managing two private funds: 

the Sabby Healthcare Master Fund, LTD and the Sabby Volatility Warrant Master Fund, LTD 

(collectively “the Private Funds”).  Defendants are compensated for their management of the 

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Private Funds through management fees as well as performance fees tied to the investment 

returns earned by the Private Funds.  Sabby has previously been sanctioned by the Commission 

in connection with improper short sales.  On October 14, 2015, the Commissioned instituted a 

settled cease-and-desist proceeding finding that Sabby violated Rule 105 of Regulation M of the 

Exchange Act on two occasions.  The Commission imposed a cease-and-desist order, 

disgorgement of $184,747.10 plus prejudgment interest, and a civil penalty of $91,669.95.   

OTHER RELEVANT ENTITIES 

17. Sabby Healthcare Master Fund, LTD. (the “Healthcare Fund”) is a Cayman 

Islands entity established in 2011.  It is a master hedge fund managed by Sabby and has two 

feeder funds, one onshore and the other in the Cayman Islands.  At the beginning of the relevant 

period, it had approximately $400 million in gross asset value.  As of its most recent public 

disclosure, it had approximately $16 million in gross asset value and 28 beneficial owners.  

During the relevant period, the Healthcare Fund’s trading strategies and investment decisions 

were made by Defendants.  As of September 30, 2022, Mintz held a 7.3% interest in the 

Healthcare Fund.    

18. The Sabby Volatility Warrant Master Fund, LTD. (the “Warrant Fund”) is a 

Cayman Islands entity established in 2011.  It is a master private equity fund managed by Sabby, 

with three feeder funds, two in the Cayman Islands and one onshore.  At the beginning of the 

relevant period, it had approximately $60 million in gross asset value.  As of its most recent 

public disclosure, it had approximately $182 million in gross asset value and 73 beneficial 

owners.  During the relevant period, the Warrant Fund’s trading strategies and investment 

decisions were made by Defendants.  As of September 30, 2022, Mintz held a 39.9% interest in 

the Healthcare Fund.    

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19. Issuer 1 is a publicly traded Nevada corporation with its principal place of 

business in Palo Alto, California.  During the relevant period, Issuer 1’s common stock was 

registered with the Commission pursuant to Section 12(b) of the Exchange Act and traded on the 

Nasdaq Stock Market LLC.  It files annual reports with the Commission pursuant to Sections 13 

and 15(d) of the Exchange Act. 

20. Issuer 2 was a publicly traded Washington corporation with its principal place of 

business in San Diego, California.  During the relevant period, Issuer 2’s common stock was 

registered with the Commission pursuant to Section 12(b) of the Exchange Act and traded on the 

New York Stock Exchange.  It filed annual reports with the Commission pursuant to Sections 13 

and 15(d) of the Exchange Act.  Subsequent to the relevant period, Issuer 2 completed a merger 

with another company to form a new company under a different name. 

21. Prime Broker 1 is a broker-dealer used by Sabby to maintain custody of the 

securities of both the Warrant Fund and the Healthcare Fund. 

22. Prime Broker 2 is a broker-dealer used by Sabby to maintain custody of the 

securities of both the Warrant Fund and the Healthcare Fund. 

23. Executing Broker-Dealer A is a broker-dealer used by Defendants to execute 

trades on behalf of both the Warrant Fund and the Healthcare Fund. 

 BACKGROUND ON REGULATION SHO 

24. Regulatory requirements applicable to short sales of equity securities are 

generally found in Regulation SHO, 17 C.F.R. § 242.200 – § 204.204, which the Commission 

adopted to address its concerns regarding persistent fails to deliver and potentially abusive 

“naked” short selling.  A “naked” short sale generally refers to selling short without having 

borrowed or arranged to borrow securities to make delivery to the buyer within the standard 

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settlement period.  All sellers of securities should promptly deliver, or arrange for delivery of, 

securities and all buyers of securities have a right to expect prompt delivery of securities 

purchased.  In enacting Regulation SHO, the Commission was concerned about the negative 

effect that fails to deliver may have on the markets and shareholders.  For example, large and 

persistent fails to deliver may deprive shareholders of the benefits of ownership, such as voting 

and lending, and sellers that fail to deliver securities on the settlement date may attempt to use 

this additional freedom to engage in trading activities to improperly depress the price of a 

security.    

TERMINOLOGY USED IN THIS COMPLAINT 

Regulation SHO  

25. Rule 200(g) of Regulation SHO requires broker-dealers to mark all sale orders of  

equity securities as “long,” “short,” or “short exempt.”  17 C.F.R. § 242.200(g). 

26. Before accepting a short sale order or effecting a short sale for its own account,  

Rule 203(b)(1) of Regulation SHO requires (with very limited exceptions not applicable here) a 

broker-dealer to locate the securities being sold; i.e., the broker-dealer must: (i) borrow the 

securities; (ii) enter into a bona fide arrangement to borrow the securities; or (iii) have reasonable 

grounds to believe that the securities can be borrowed so that they can be delivered on the date 

delivery is due.  This provision is generally referred to as the “locate” requirement under 

Regulation SHO.  The source of the locate must be documented.  Broker-dealers usually charge 

customers a fee for borrowing securities.   

27.       Ownership of a security convertible into, or exchangeable for, the security being  

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sold, is not a borrow or arrangement to borrow the security being sold.  Ownership of a security 

convertible into, or exchangeable for, the security being sold would also not provide reasonable 

grounds to believe the security being sold can be borrowed.   

Deemed to Own 

28. Under Regulation SHO, a seller is “deemed to own” a security only if it has a net 

long position in a security.  17 C.F.R. § 242.200(c). 

29. A seller may be deemed to own a security if, for example, (i) the person 

purchased, or has entered into an unconditional contract, binding on both parties thereto, to 

purchase it, but has not yet received the security; or (ii) the person owns a security convertible 

into or exchangeable for it and has tendered such security for conversion or exchange.  

30.       For purposes of order marking rules under Regulation SHO, a seller of  

convertible securities (i.e., other securities that are convertible into the underlying stock being 

sold) is not “deemed to own” the underlying common stock until the seller has tendered such 

convertible security for conversion or exchange.    

Short Selling 

31.          A “short sale” is the sale of a security that the seller does not own or any sale  

that is consummated by the delivery of a security borrowed by, or for the account of, the seller.  

In order to deliver the security to the purchaser, the short seller will borrow the security, typically 

from a broker-dealer or an institutional investor.  The short seller later closes out the position by 

purchasing equivalent securities on the open market, or by using an equivalent security it already 

owned, and returning the security to the lender.  In general, short selling is used to profit from an 

expected downward price movement, to provide liquidity in response to unanticipated demand, 

or to hedge the risk of a long position in the same security or in a related security.    

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32. Ordinarily (except in very limited circumstances not applicable here), sellers must 

“locate” shares prior to selling short. 

Naked Short Selling  

33. In a “naked” short sale, a seller does not borrow or arrange to borrow securities 

intime to make delivery to the buyer within the standard settlement period. 

Long Selling 

34. “Long selling” occurs when the seller owns the security being sold and has a  

reasonable expectation that he can deliver the security in time for settlement.   

35.  Under Regulation SHO, an order to sell may be marked “long” only if two 

conditions are met.  First, the seller must be “deemed to own” the security pursuant to Rule 

200(a) through (f) of Regulation SHO.  17 C.F.R. § 242.200.  A seller is deemed to own a 

security only to the extent that it has a net long position in a security.  Second, to mark a sale 

long, the broker-dealer must either: (i) have possession or control of the security to be delivered; 

or (ii) reasonably expect that the security will be in its physical possession or control no later 

than the settlement of the transaction.  17 C.F.R. § 242.200(g).  If a seller does not deliver the 

security in time for settlement, a buyer may not get what it purchased in a timely manner, 

eroding trust and confidence in the markets, and potentially depriving market participants of the 

benefits of their bargain.   

Failure to Deliver 

36.     Regulation SHO was designed, in part, to reduce “failures to deliver,” which  

occur when a seller fails to deliver securities that it has sold by the settlement date.  Failures to 

deliver may negatively impact the market and shareholders.  See Amendments to Regulation 

SHO, Exch. Act Rel. No. 34-60388 (July 27, 2009).  Further, sellers that fail to deliver securities 

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on the settlement date may, as here, attempt to use this additional freedom to engage in trading 

activities to depress improperly the price of a security.  See id. at 6-7.  Further, by not borrowing 

securities and, therefore, risking that it will not be able to make delivery within the standard 

settlement period, the seller benefits by not incurring the costs of borrowing shares.   

FACTUAL ALLEGATIONS 

I. SABBY’S OPERATIONS 

37.     As managing partner of Sabby, Mintz had primary responsibility for making  

investment decisions for the Private Funds.  Sabby’s investment strategy involved, in part, 

participating in secondary offerings by issuers, which frequently included common stock and/or 

convertible securities of the issuer.   

38.    Mintz also had primary responsibility under Sabby’s policies and procedures for  

knowing whether the Private Funds had a net short or long position in an issuer’s stock and 

whether each sale of an issuer’s stock was a short sale or a long sale.  In addition, he was 

responsible for ensuring that Sabby’s trading records were consulted in order to confirm this 

information before submitting any trades.    

39.     In particular, before a short sale order could be placed, Sabby’s policies and  

procedures required Mintz or his trading designee to consult Sabby’s trading records, including 

(i) a list of available locates provided on a daily basis from Prime Broker 1 (“Locate Availability 

List”); (ii) Sabby’s trading log to see how many shares of the issuer had been sold short so far 

that day; and (iii) short sales executed through brokers not reflected in Sabby’s trading log.    

40.      Mintz was also responsible for reporting any instance where a locate was not  

properly obtained, for reviewing all short sale reports for accuracy, and for ensuring that all 

orders, including short sale orders, were marked correctly. 

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II. VIOLATIVE SHORT SELLING IN THE SECURITIES OF ISSUER 1 
 

41. In June 2018, Defendants engaged in a scheme to circumvent Regulation SHO 

requirements in connection with the short sales of millions of shares of the common stock of 

Issuer 1.  As more fully described below, Defendants’ scheme including short selling without 

having locates in place and naked short selling in which they not only failed to have locates but 

also failed to timely deliver the securities being sold.  Defendants’ goals were two-fold.  First, 

Defendants knowingly or recklessly used their violative short selling to push down artificially 

the price of Issuer 1’s stock so that Defendants could lower the price at which Defendants were 

able to exercise their Issuer 1 convertible securities, thus obtaining more stock upon conversion.   

42.       Second, regardless of whether Defendants succeeded in driving down Issuer  

1’s stock price by their improper short selling, Defendants knew or were reckless in not knowing 

they could profit additionally from selling Issuer 1’s stock in violation of Regulation SHO’s 

locate requirements.  As set forth more fully below, their fraudulent trading scheme worked as 

follows:  first, they entered into a securities purchase agreement with Issuer 1 on behalf of the 

Warrant Fund that, for a brief period, effectively allowed Defendants to exercise convertible 

preferred securities in exchange for Issuer 1’s stock at an approximately 20% discount to the 

market price.  Then, prior to exercising the convertible securities, they entered short sales orders 

without first obtaining a locate, circumventing Regulation SHO.  Almost immediately after those 

short sales, they executed their conversion rights to acquire Issuer 1 stock and attempted, albeit 

unsuccessfully, to use those shares to cover their short sales.  In this manner, Defendants locked 

in an approximate 20% spread.  In other words, by short selling without first obtaining a locate, 

they effectively were able to sell at market price and then acquire the shares at a 20% discount to 

market price, earning substantial illicit proceeds.  Defendants would not have been able to do this 

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if they had followed the rules that required locates for their short sales because they would not 

have been able to obtain locates in sufficient quantity, if at all.    

43.      As part of the scheme, Defendants knowingly or recklessly submitted 

materially false and misleading order instructions to executing broker-dealers for the long sale of 

millions of shares of Issuer 1’s common stock on behalf of the Warrant Fund when it did not 

have a net long position in the stock.  Defendants also submitted order instructions for the short 

sale of millions of shares of Issuer 1’s common stock on behalf of the Warrant Fund while 

knowingly or recklessly making materially false and misleading representations to executing 

broker-dealers that, through their prime brokers, Defendants had obtained locates for Issuer 1’s 

common stock in connection with the short sales.   

44. After making these materially false and misleading statements in connection with 

their short sales, Defendants tendered for conversion millions of shares of convertible Issuer 1 

securities.  As described more fully below, the fraudulent scheme allowed Defendants to 

generate hundreds of thousands of dollars in ill-gotten gains for the Warrant Fund and led to 

Defendants’ failure to deliver millions of shares of Issuer 1.  

Defendants’ Fraudulent Trading and Ill-gotten Profits 

45. In April 2018, Defendants, on behalf of the Warrant Fund, entered into a 

securities purchase agreement with Issuer 1 through which Defendants acquired preferred 

securities that could be converted into Issuer 1’s common stock at a conversion price of $0.46 

per share.  The agreement contained a provision that, on June 25, 2018, the conversion price of 

the preferred securities would be adjusted to 80% of the volume-weighted average price 

(“VWAP”) of Issuer 1’s common stock on the preceding trading day, June 22, 2018 (“the reset 

provision”).   

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46. The reset provision gave Defendants a financial incentive to push down the price 

of Issuer 1’s common stock before June 22, 2018 in order to receive more common stock upon 

conversion.   

47. This was a strategy Defendants had employed previously and which Mintz 

explained in a February 2018 exchange with a representative of an executing broker-dealer in 

connection with Defendants’ trading in another security:   

MINTZ: the deal that was just done that had a pricing mechanism 
MINTZ: that I made 
MINTZ: that for 5 days 
MINTZ: we got the lowest daily vwap [volume-weighted average price] minus 10% 
MINTZ: so incentive was to sell as much as possible 
MINTZ: during that point 
MINTZ: set a low price 
MINTZ: for our shares and warrants 
MINTZ: then let it go back up 
MINTZ: to monetize the warrants 
MINTZ: that we got at 5.3c 
MINTZ: stock was 40c predeal 
MINTZ: so now that pricing is set 
MINTZ: not going to be slamming stock  

 

48. With two trading days remaining before the reset provision took effect, 

Defendants intentionally began naked short selling Issuer 1’s common stock, putting downward 

pressure on Issuer 1’s stock price.  

49. On June 21, 2018, the Warrant Fund began the day with a net long position of 286 

shares of Issuer 1’s common stock.  Defendants knew or were reckless in not knowing about the 

Warrant Fund’s net long position, as it was reflected in Sabby’s contemporaneous trading 

records, and Sabby’s policies required Mintz to know this information before placing trades.  

Throughout the day, Defendants, on behalf of the Warrant Fund, submitted to executing broker-

dealers materially false and misleading order instructions for the long sale of 1,126,033 shares 

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of Issuer 1’s common stock that executed at prices between approximately $0.29 and $0.33 per 

share.   

50. Defendants knew, or were reckless in not knowing, that the sale of all but 286 

shares should have been marked as short sales because the Warrant Fund did not have a 

sufficient net long position in the common stock of Issuer 1 at the time Defendants submitted 

the orders.   

51. That same day, June 21, 2018, Defendants, on behalf of the Warrant Fund, 

submitted order instructions to executing broker-dealers for the short sale of an additional 

569,184 shares of Issuer 1’s common stock that executed at prices between approximately $0.29 

and $0.30 per share.  Defendants falsely represented to the executing broker-dealers that 

Defendants had obtained locates for Issuer 1’s common stock in connection with these short 

sales.  At the time, Defendants knew or were reckless in not knowing that they had not located 

any shares available to be borrowed, as reflected in Sabby’s contemporaneous trading records.   

52. Defendants’ trading comprised 52% of trading in Issuer 1’s common stock on 

June 21, 2018, and the price of Issuer 1’s stock fell from $0.34 to $0.29 per share over the 

course of the day, a 14.7% drop 

53. On June 22, 2018, the Warrant Fund began the day with a net short position in 

Issuer 1’s common stock of 1,694,931 shares.  Throughout the day, Defendants, on behalf of the 

Warrant Fund, submitted to executing broker-dealers order instructions for the long sale of 

3,288,203 shares of Issuer 1’s common stock that executed at prices between approximately 

$0.18 and $0.34 per share.  As Defendants knew or were reckless in not knowing, these 

instructions were materially false and misleading in designating the sales as “long” sale orders, 

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rather than short sales, because the Warrant Fund did not have a net long position in Issuer 1’s 

common stock at the time Defendants submitted the orders.   

54. That same day, June 22, 2018, Defendants, on behalf of the Warrant Fund,  

submitted to executing broker-dealers order instructions for the short sale of an additional 

3,991,688 shares of Issuer 1’s common stock that executed at prices between approximately 

$0.19 and $0.33 per share.  Defendants made materially false and misleading representations to 

the executing broker-dealers in the order instructions that Defendants had obtained locates for 

Issuer 1’s common stock in connection with these short sales, when Defendants knew or were 

reckless in not knowing that they had not located any shares available to be borrowed, as 

reflected in Sabby’s contemporaneous trading records.   

55. Defendants’ trading comprised 42% of trading in Issuer 1’s common stock on 

June 22, 2018, and the price of Issuer 1’s stock fell from $0.31 to $0.19 per share over the 

course of the day, a 38.7% drop.  After Defendants’ trading on June 21 and 22, 2018, the 

Warrant Fund had a net short position of 8,974,822 shares in Issuer 1’s stock. 

56. After the close of trading markets on June 22, 2018, Defendants calculated the 

adjusted conversion rate for the Warrant Fund’s Issuer 1 preferred securities – based on 80% of 

VWAP on June 22, 2018 – to be $0.1779 per share, down from the original rate of $0.46 per 

share.   

57. At or around 5:31 PM Eastern Time on June 22, 2018, Defendants, on behalf of 

the Warrant Fund, submitted a conversion notice to Issuer 1 to convert $1,797,017 worth of 

preferred securities into 10,101,280 shares of Issuer 1 common stock at a conversion rate of 

$0.1779 per share.  The effective date of the conversion was June 25, 2018.   

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58. Defendants intended to use these shares to satisfy the delivery obligations for their 

June 21 and 22, 2018 sales of Issuer 1 common stock and to try to conceal their violative short 

sales for which they had failed to obtain locates.  However, as Defendants knew or were 

reckless in not knowing all along, the use of these converted shares to cover their sales would 

not and did not in any way cure their violative trading.  Delivery of those shares did not cure the 

fact that they had mismarked their trades as long sales when they were not “deemed to own” the 

shares or did not have a net long position in Issuer 1 at the time they submitted the mismarked 

orders.  Similarly, delivery of those shares did not cure their violations of the locate 

requirements of Regulation SHO because they had placed short sales without actually having 

obtained a locate, and as Defendants knew or were reckless in not knowing, they could not use 

the fact that they held convertible securities that could be exchanged for Issuer 1 stock to satisfy 

the locate requirement.     

59. If Defendants had converted $1,797,017 worth of Issuer 1 preferred securities 

prior to the adjustment of the conversion rate, effective June 25, 2018, the conversion would 

have yielded only 3,906,560 shares of Issuer 1 common stock.  Instead, by tendering the 

convertible securities after Issuer 1’s stock price plummeted by over 60% and the conversion 

rate was adjusted downward, Sabby’s conversion of $1,797,017 worth of preferred securities at 

the price of $0.1779 per share resulted in approximately 10.1 million shares of common stock.  

60. Beyond the additional shares Defendants obtained from the decline in Issuer 1’s 

stock price between June 21 and June 22, Defendants locked in a 20% profit through their short 

selling without obtaining locates in violation of the requirements of Rule 203(b)(1) of 

Regulation SHO.  As explained above, the conversion price of Defendants’ preferred Issuer 1 

securities was adjusted downward to 80% of VWAP on June 22, 2018, effectively giving 

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Defendants a right to convert these securities in exchange for Issuer 1 stock at an approximate 

20% discount to the market price.  Defendants knowingly or recklessly chose to sell short shares 

of Issuer 1 on June 21 and 22 without obtaining locates, and, immediately after those sales, 

Defendants exercised their conversion rights in exchange for the Issuer 1 shares needed to cover 

their short sales.  Through this fraudulent scheme, Defendants, in effect, sold short shares of 

Issuer 1 at market price and subsequently acquired shares at an approximate 20% discount to 

the market price, earning substantial illicit proceeds of $480,000 for the Warrant Fund.   

Defendants profited personally in connection with this trading from the management and 

performance fees they obtained from managing the Warrant Fund.  As well, Mintz profited from 

his ownership interest in the Warrant Fund.   

Defendants’ False and Misleading Statements to Executing Broker-Dealer A  

61. Defendants made repeated material misrepresentations to Executing Broker-

Dealer A and engaged in other deceptive conduct described below to try to conceal their illegal 

trading.  Defendants knew or were reckless in not knowing that Executing Broker-Dealer A 

relied on their false and misleading statements in executing their abusive naked short sales.   

62. Between June 21 and 22, 2018, Defendants made repeated misrepresentations to 

Executing Broker-Dealer A regarding their orders for the sale of Issuer 1’s securities.  After 

Defendants’ initial submission on June 21, 2018, of false and misleading order instructions to 

Executing Broker-Dealer A for the long sale of one million shares of Issuer 1, Mintz had a 

telephone call with representatives of Executing Broker-Dealer A.  In response to questioning by 

the representatives of Executing Broker-Dealer A about the validity of how the trade was 

marked, Mintz conceded that the improperly marked long sale should have been marked as a 

short sale, which Executing Broker-Dealer A changed to a short sale order for one million shares 

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of Issuer 1.  Subsequently, Defendants withdrew a second false long sale order and resubmitted 

the order as a short sale order for one million shares of Issuer 1.  By designating the sales as 

short sales, however, Defendants were obligated under Regulation SHO to obtain a locate.   

63. Later, on June 21, 2018, a representative of Executing Broker-Dealer A made 

multiple requests to Defendants to confirm the source of their locate for both one million short 

sales orders.  Initially, Mintz falsely stated that the locate for the first order was provided by 

Prime Broker 1, and that the locate for the second order was provided by Prime Broker 2.  Later 

that day, he reversed and falsely stated that Prime Broker 2 provided the locate for the first order 

and Prime Broker 1 provided the locate for the second.  

64. Because Sabby’s policies required Mintz to verify a security’s locate availability 

before short selling and, as reflected in Sabby’s contemporaneous trading records, there were no 

locates, Mintz knew or was reckless in not knowing that neither prime broker had locates 

available for any shares of Issuer 1.      

65. On the morning of June 22, 2018, a Director of Compliance of Executing Broker-

Dealer A sent an email to Sabby requesting contact information for Prime Broker 1 and Prime 

Broker 2 or, alternatively, documentation confirming that Defendants had obtained locates from 

Prime Broker 1 and Prime Broker 2 in connection with Defendants’ short sales.   

66. Later that day, the Director of Compliance of Executing Broker-Dealer A 

attempted to speak with a representative of Sabby, but their call was disconnected.  Shortly after 

the call, at around 12:30 PM, the Director of Compliance of Executing Broker-Dealer A sent an 

email to Defendants again demanding documentation of the locates or documentation showing 

that Defendants had tendered the preferred securities of Issuer 1 for conversion prior to 

submitting the short sale orders. 

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67. At or around 6:06 PM on Friday, June 22, 2018, in an attempt to mislead 

Executing Broker-Dealer A on the sequence of events, a representative of Sabby sent an email 

to the Director of Compliance of Executing Broker-Dealer A that included a copy of Sabby’s 

conversion notice tendered to Issuer 1 at or around 5:31 PM, well after Defendants had 

submitted the short sale orders.  

68. Upon reviewing this email on Monday, June 25, 2018, the Director of 

Compliance of Executing Broker-Dealer A recognized that the conversion notice failed to 

satisfy his request for documentation of Defendants’ locates or documentation showing that 

Defendants had tendered the preferred securities of Issuer 1 for conversion prior to submitting 

the short sale orders.  Subsequently, on June 25, 2018, the Director of Compliance sent another 

email to Defendants requesting evidence of locates prior to the sales.  Defendants ignored this 

request. 

69. On the morning of June 26, 2018, a representative of Executing Broker-Dealer A 

sent another email to Defendants, renewing the Director of Compliance’s request for 

documentation.  Shortly after, a representative of Sabby responded by email, stating, “Shares 

will be delivered today. Thank you for your patience.” 

70. However, Defendants failed to deliver shares of Issuer 1’s common stock until 

June 28, 2018, and failed to satisfy their settlement obligation in connection with their short 

sales of Issuer 1’s common stock on June 21 and 22, 2018.  As a result of this late delivery, by 

June 27, 2018, the Warrant Fund’s abusive naked short sales caused fails-to-deliver of 

approximately nine million shares of Issuer 1.   

71. In testimony, Mintz has admitted that he was aware: (1) of the Warrant Fund’s 

opening position in the common stock of Issuer 1 on June 21 and 22, 2018 at the time of the 

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relevant trades (i.e., that the Warrant Fund had only 286 shares of Issuer 1 on June 21 and a net 

short position of 1,694,931 shares on June 22); (2) that Defendants had not tendered for 

conversion the convertible securities prior to placing the trades; and (3) that Defendants’ trades 

in Issuer 1 were mismarked.   

III. VIOLATIVE SHORT SELLING IN THE SECURITIES OF ISSUER 2 

72. In January 2018, Defendants engaged in a fraudulent scheme to circumvent 

Regulation SHO by selling short tens of thousands of shares of Issuer 2’s common stock without 

obtaining locates.  As more fully described below, Defendants intended to profit by short selling 

Issuer 2’s common stock without obtaining locates and subsequently acquiring the common 

stock of Issuer 2 at a cheaper price than if they had followed the locate requirements of Rule 

203(b)(1) of Regulation SHO.   

73. Between January 8 and 9, 2018, Defendants submitted instructions to executing 

broker-dealers for the short sale of Issuer 2’s common stock on behalf of the Private Funds while 

knowingly or recklessly making materially false and misleading representations that they had 

obtained locates for shares of Issuer 2’s common stock in connection with these short sales.   

74. After submitting the violative short sale orders, on January 10, 2018, Defendants 

entered into a securities purchase agreement with Issuer 2 through which Defendants, on behalf 

of the Private Funds, acquired one million shares of Issuer 2’s common stock.  Defendants 

attempted to use these shares to satisfy the delivery obligations and conceal their failure to have 

obtained locates for their short sales, but the shares were not delivered until January 12, 2018, 

and Defendants caused fails-to-deliver of thousands of shares of Issuer 2.  As Defendants knew 

or were reckless in not knowing, the use of after-acquired shares to cover their short sales for 

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which they had not obtained a locate at the time of their short sale order could not cure their 

failure to comply with the locate requirements of Rule 203(b)(1) of Regulation SHO.  

The January 8 and 9, 2018 Trading 

75. On January 8, 2018, the Warrant Fund and the Healthcare Fund began the day 

with net short positions in Issuer 2 of 49,333 and 60,870 shares, respectively, as reflected in 

Sabby’s contemporaneous trading records. 

76. At 6:30 AM Eastern Time on that day, Defendants were informed by Prime 

Broker 1 that their request for a 250,000 share locate for Issuer 2’s shares was denied. 

77. Notwithstanding this denial, at 8:38 AM, Defendants knowingly or recklessly 

submitted to an executing broker-dealer two short sale orders – a short sale of 14,147 shares of 

Issuer 2 on behalf of the Warrant Fund and another short sale of 14,148 shares of Issuer 2 on 

behalf of the Healthcare Fund, for a total of 28,295 shares of Issuer 2 to be sold short.   

78. As part of the order instructions, Defendants falsely represented to the executing 

broker-dealer that Prime Broker 2 had provided a locate in connection with the short sales.  As 

Defendants knew or were reckless in not knowing, at the time of the order, no locate had been 

provided to Defendants by either Prime Broker 1 or Prime Broker 2. 

79. At 9:31 AM, Defendants again requested a locate from Prime Broker 1 and were 

denied.   

80. At 9:32 AM, however, Prime Broker 2 granted Defendants a locate for 30,000 

shares of Issuer 2.  While enough to cover the earlier aggregate 28,295 short sale order of Issuer 

2’s shares on behalf of the Private Funds, the locate was untimely given that it was granted after 

the short sale orders had been placed.  

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81. At 12:23 PM, Prime Broker 2 granted Defendants an additional locate for 25,000 

shares of Issuer 2.  Defendants immediately submitted two short sale orders to an executing 

broker dealer for 25,000 shares on behalf of each Fund, for a total of 50,000 shares to be sold 

short.  As Defendants knew or were reckless in not knowing, while Prime Broker 2’s 25,000 

share locate was sufficient to cover one of the Fund’s short sales, it was insufficient to cover 

both. 

82.  At 4:40 PM, Defendants submitted a third short sale order instruction to an 

executing broker-dealer on behalf of the Healthcare Fund for yet an additional 25,000 shares of 

Issuer 2.  However, only 2,594 shares were actually sold at $1.95 per share.  As part of the order 

instructions, Defendants again falsely represented that Prime Broker 2 had provided a locate in 

connection with the short sales, even though they knew or were reckless in not knowing that the 

locates provided by Prime Broker 2 were insufficient to cover Defendants’ short sales.   

83. By placing short sale orders prior to receiving any locates or without sufficient 

locates, and then failing to deliver shares on a timely basis, Defendants naked short sold 25,889 

shares of Issuer 2.   

84. On January 9, 2018, the Warrant Fund and the Healthcare Fund began the day 

with net short positions of 88,480 and 102,615 shares, respectively, in Issuer 2. 

85. As had occurred on the previous day, Defendants were informed at 6:30 AM by 

Prime Broker 1 that their request for a locate of 250,000 shares of Issuer 2 was denied. 

86. At 7:54 AM, Defendants requested a locate for Issuer 2’s shares from Prime 

Broker 2 and were also denied. 

87. At 7:57 AM, Defendants submitted another request to Prime Broker 1 and were 

granted a locate of 5,000 shares of Issuer 2. 

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88. At 8:00 AM, a Sabby employee informed Mintz that a locate for 5,000 shares of 

Issuer 2 had been granted. 

89. Despite knowing that only 5,000 shares of Issuer 2 had been located, at 8:02 AM 

Defendants submitted to an executing broker-dealer order instructions to sell short 450,000 

shares of Issuer 2 without sufficient locates on behalf of the Healthcare Fund, resulting in the 

sale of 1,400 shares that executed at prices between $1.50 and $1.80 per share.    

90. At the same time, Defendants submitted a separate order on behalf of the Warrant 

Fund for the short sale of 250,000 shares without sufficient locates to an executing broker-

dealer, resulting in the sale of 1,674 shares that executed at approximately $1.52 per share.   

91. In the instructions for both orders, Defendants misleadingly identified Prime 

Broker 1 as the source of the locate for the 450,000 short sale order and the 250,000 short sale 

order, even though Defendants knew or were reckless in not knowing that Prime Broker 1 had 

only provided a limited locate of 5,000 shares. 

92. At 11:02 AM, a Sabby employee informed Mintz that the Warrant Fund and 

Healthcare Fund had not obtained any additional locates for Issuer 2’s securities.  Despite 

knowing this, Defendants nevertheless submitted additional order instructions to executing 

broker-dealers for short sales in Issuer 2’s stock between 12:41 PM and 1:21 PM.  In the order 

instructions, Defendants again, acting knowingly or recklessly, falsely represented that Prime 

Broker 1 had provided locates.  These orders resulted in 35,216 shares sold short by Defendants, 

with no locate, that executed at a price of approximately $1.52 per share. 

93. On the following day, January 10, 2018, Defendants, on behalf of the Private 

Funds, entered into a securities purchase agreement with Issuer 2 to buy one million shares of 

the company’s common stock at $1 per share.  Defendants attempted to use these shares to 

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settle their short sales without locates executed on January 8 and 9, 2018.  However, as 

Defendants knew or were reckless in not knowing, regardless of the subsequent securities 

purchase agreement, Defendants did not have sufficient locates at the time of their short sale 

orders and their trades were in violation of the locate requirements of Regulation SHO. 

94. Despite trying to use the securities obtained through the securities purchase 

agreement to settle their short sales, by January 11, 2018, Defendants’ short sales in Issuer 2 

caused fails-to-deliver of at least 33,000 shares of Issuer 2. 

95. As described above, Defendants naked sold short over 30,000 shares of Issuer 2 

that were executed at prices between $1.50 and $1.95 per share, and subsequently purchased 

Issuer 2 shares at a price of $1 per share.  By naked short selling Issuer 2’s common stock at 

market price and subsequently acquiring shares of Issuer 2 through the securities purchase 

agreement at a substantially cheaper price per share, Defendants gained ill-gotten proceeds of 

approximately $134,000, and net profits of $49,000 for the Private Funds.  Defendants profited 

personally in connection with this trading from the management and performance fees they 

obtained from managing the Private Funds.  As well, Mintz profited from his ownership interest 

in the Private Funds.  

IV. ADDITIONAL ABUSIVE TRADING 

96. Defendants engaged in similar abusive trading in the securities of at least eight 

additional issuers.   

97. The frequency of Defendants’ abusive trading and the similarity of the 

misconduct across Defendants’ trading, as well as Sabby’s prior history of short sale violations 

in connection with Rule 105 of Regulation M, demonstrate that these violations were not errors, 

but, in fact, part of a fraudulent scheme to circumvent trading rules.   

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98. Defendants’ additional abusive trading, the details of which are set forth more 

fully in Appendix A to this Complaint, took place between March 15, 2017 and May 6, 2019.  As 

set forth in Appendix A, in each instance, Defendants knowingly or recklessly either submitted 

(a) materially false and misleading trade order instructions to executing broker-dealers for long 

sales on behalf of the Private Funds when the Private Funds did not have a net long position in 

the security and were not deemed to own the securities; or (b) submitted short sale trade 

instructions to executing broker-dealers for short sales on behalf of the Private Funds while 

making materially false and misleading representations that Defendants had obtained locates in 

connection with the short sales when in fact they had not obtained locates.   

99. Defendants engaged in this fraudulent trading scheme because it was profitable to 

do so and more profitable than following the requirements of Regulation SHO.  Defendants 

profited from the difference between the higher price of their abusive sales (naked short sales; 

short sales without locates; and/or mismarked long sales) and the cheaper price they 

subsequently paid to acquire the stock or exercise convertible securities in exchange for stock.  

Had Defendants complied with the applicable trading rules – including owning a security before 

submitting a long sale order or borrowing or locating a security before submitting a short sale 

order – they would not have secured the same profits.  As a result of their fraudulent scheme, 

Defendants obtained at least $2 million in illegal trading profits for themselves and the Private 

Funds. 

V. SABBY’S INADEQUATE BOOKS AND RECORDS  
 

100. Pursuant to Section 204 of the Advisers Act [15 U.S.C. § 80b-4] and Rule 204-2  

thereunder [17 C.F.R. § 275.204-2], Sabby, as an investment adviser, was required to make and 

keep certain books and records related to its advisory business.  Among other records, Rule 204-

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2 requires investment advisers to keep accurate records relating to orders to purchase or sell any 

security. 

101. During the relevant period, Sabby failed to keep accurate books and records with  

respect to certain orders to sell securities, as detailed above, when Defendants mismarked those 

sales as long when those sales should have been marked as short and when Defendants 

represented in their order instructions that they had obtained locates for short sales, when in fact 

Defendants had not.   

102. Mintz, having primary oversight over investment decisions, including daily 

securities trading decisions, for the Private Funds, was responsible for the entry of these 

inaccurate orders and knew or was reckless in not knowing that the information was false, and 

as such, aided and abetted Sabby’s violations.   

VI. SABBY’S INADEQUATE COMPLIANCE POLICIES AND 
PROCEDURES  

 
103. Pursuant to Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(4)] and Rule 

206(4)-7 thereunder [17 C.F.R. § 275.206(4)-7], Sabby was required to have policies and 

procedures reasonably designed to prevent violations of the Advisers Act and to implement 

those policies and procedures.    

104. However, during the relevant period, Sabby failed to enforce and otherwise 

implement compliance with its existing procedures, including those designed to ensure accurate 

books and records.  As alleged above, Defendants continuously mismarked short sale orders as 

long sales and inaccurately represented in their order instructions that they had locates for short 

sales when they did not.     

105. Sabby’s policies and procedures relating to Regulation SHO assigned Mintz, or 

his trading designee, responsibility for determining whether the Private Funds had a net long or 

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short position in a security.  This responsibility included determining prior to each sale whether 

it was a long or short sale.   

106. Under Sabby’s policies and procedures, Mintz was responsible as well for 

ensuring that Sabby’s locate availability list, trading log, and other trading records were 

consulted before execution of any trades, and Mintz was responsible for reporting any instance 

where a locate was not properly obtained, for reviewing all short sale reports for accuracy, and 

for ensuring that all orders, including short sale orders, were marked correctly. 

107. Mintz, however, failed to implement and comply with these procedures and 

continuously created inaccurate trading records and submitted mismarked trades.  He therefore 

aided and abetted Sabby’s compliance failures, including those related to its inadequate books 

and records. 

108. For its part, Sabby failed to implement procedures to ensure that Mintz complied 

with his obligations as set forth above and thus prevent violations of the Advisers Act 

THIS ACTION IS TIMELY FILED 

109. Defendants agreed to toll any statute of limitations applicable to the claims 

alleged herein during the period from December 2, 2022 through March 22, 2023 and the period 

from March 30, 2023 through June 30, 2023. 

 
CLAIMS FOR RELIEF 

 
First Claim for Relief 

Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder 
(Against Mintz and Sabby) 

 
110. Paragraphs 1 through 109 are realleged and incorporated by reference. 

111. Defendants directly or indirectly, singly or in concert with others, in connection 

with the purchase or sale of any security, with scienter, using the means or instrumentalities of 

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interstate commerce, or of the mails, or of a facility of a national securities exchange: (a) 

employed devices, schemes, or artifices to defraud; (b) made untrue statements of material facts 

and omitted to state material facts necessary in order to make the statements made, in the light of 

the circumstances under which they were made, not misleading; and/or (c) engaged in acts, 

practices, and courses of business which operated or would have operated as a fraud or deceit 

upon others, including, but not limited to engaging in the fraudulent scheme described herein, 

including the knowing or reckless circumventing of Regulation SHO through mismarking orders, 

failing to obtain locates for short sales and failing to timely deliver shares as required by 

applicable rules, and submitting materially false and misleading order instructions and making 

other false and misleading statements to executing broker-dealers as described in paragraphs 41 

through 99. 

112. By reason of the foregoing, Defendants violated and, unless restrained and 

enjoined, are reasonably likely to continue to violate Section 10(b) of the Exchange Act [15 

U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. 

Second Claim for Relief 
Violations of Section 10(b) of the Exchange Act and Rule 10b-21 Thereunder 

(Against Mintz and Sabby) 
 

113. Paragraphs 1 through 109 are realleged and incorporated by reference. 

114. The common stock of Issuer 1 and Issuer 2 are each a “security” within the 

meaning of Section 3(a)(10) of the Exchange Act [15 U.S.C. § 78c(a)(10)] and are each an 

“equity security” within the meaning of Section 3(a)(11) of the Exchange Act [15 U.S.C. § 

78c(a)(11)].  

115. Defendants directly and indirectly, singly or in concert, knowingly or recklessly, 

in connection with the purchase and sale of securities, by use of the means and instrumentalities 

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of interstate commerce, or of the mails or of the facilities of a national securities exchange, have 

submitted an order to sell an equity security while deceiving a broker or dealer, a participant of a 

registered clearing agency, or a purchaser about their intention or ability to deliver the security 

on or before the settlement date, and failed to deliver the security on or before the settlement 

date, including, but not limited to Defendants’ sales of Issuer 1’s securities described in 

paragraphs 41 through 71 and Issuer 2’s securities described in paragraphs 72 through 95.  

116. By reason of the foregoing, Defendants, directly or indirectly, singly or in concert, 

have violated and, unless restrained and enjoined, are reasonably likely to continue to violate 

Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-21 thereunder [17 C.F.R. § 

240.10b-21].  

Third Claim for Relief 
Violations of Section 204 of the Advisers Act and Rule 204-2 Thereunder 

(Against Sabby) 
 

117. Paragraphs 1 through 109 are realleged and incorporated by reference. 

118. During the relevant period, Sabby acted as investment adviser to the Private 

Funds. 

119. Accordingly, Sabby was legally obligated to “make and keep true, accurate and 

current” books and records prescribed by the Commission relating to Sabby’s investment 

advisory business and to “furnish such copies” of those records as the Commission requires, 

pursuant to Section 204(a) of the Advisers Act [15 U.S.C. § 80b–4] and Rule 204-2 thereunder 

[17 C.F.R. §§ 275.204-2]. 

120. Sabby, by use of the mails and the means and instrumentalities of interstate 

commerce, directly or indirectly, created and maintained false books and records when, as 

described above, Defendants submitted mismarked orders to sell securities long when those 

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orders should have been marked as short sales and when Defendants falsely represented in the 

order instructions that they had obtained locates for short sales, when in fact they had not.   

121. By reason of the foregoing, Sabby, directly or indirectly violated and, unless 

restrained and enjoined, is reasonably likely to continue to violate Section 204 of the Advisers 

Act [15 U.S.C. § 80b-4] and Rule 204-2 thereunder [17 C.F.R. §§ 275.204-2]. 

 
Fourth Claim for Relief 

Violations of Section 206(4) of the Advisers Act and Rule 206(4)-7 Thereunder 
(Against Sabby) 

 
122. Paragraphs 1 through 109 are realleged and incorporated by reference. 

123. Section 206(4) of the Advisers Act [15 U.S.C. §80b-6(4)] provides that it is 

unlawful for an investment adviser to engage in an act, practice, or course of business which is 

fraudulent, deceptive, or manipulative.  It further states that the SEC shall issue rules to define 

and prescribe measures to prevent such misconduct.  Rule 206(4)-7 issued under the Advisers 

Act [17 C.F.R. §275.206(4)-7] requires investment advisers to adopt and implement written 

policies and procedures reasonably designed to prevent violations of the Advisers Act and its 

rules.  Investment advisers must also review the adequacy of those policies and procedures and 

the effectiveness of their implementation, at least annually. 

124. As described in paragraphs 37 through 40, Sabby’s policies and procedures 

assigned Mintz, or his trading designee, responsibility for determining whether the Private Funds 

had a net long or short position in a security.  In addition, Mintz was responsible for consulting 

Sabby’s trading records before trade execution, ensuring trades were marked properly, reviewing 

short sale reports for accuracy, and reporting instances where a locate was not properly obtained. 

125. Sabby, however, failed to implement, as well as enforce compliance with its 

existing procedures, including those designed to ensure accurate books and records.  As alleged 

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above, Defendants, by use of the mails and the means and instrumentalities of interstate 

commerce, directly or indirectly, continuously mismarked short sale orders as long sales and 

inaccurately represented in their order instructions that they had locates for short sales when they 

did not.   

126. By reason of the foregoing, Sabby, directly or indirectly violated and, unless 

restrained and enjoined, is reasonably likely to continue to violate Section 206(4) of the Advisers 

Act [15 U.S.C. § 80b-6] and Rule 206(4)-7 thereunder [17 C.F.R. § 275.206(4)-7]. 

Fifth Claim for Relief 
Aiding and Abetting Violations of Sections 204 and 206(4) of the Advisers Act and                          

Rules 204-2 and 206(4)-7 Thereunder 
(Against Mintz) 

 
127. Paragraphs 1 through 109 are realleged and incorporated by reference. 

128. As a result of the conduct alleged herein, and in particular paragraphs 37 through 

40 and paragraphs 100 through 108, Mintz aided and abetted Sabby’s violations of Sections 204 

and 206(4) of the Advisers Act [15 U.S.C. §§ 80b-4 and 80b-6(4)] and Rules 204-2 and 206(4)-7 

thereunder [17 C.F.R. §§ 275.204-2 and 275.206(4)-7] by knowingly or recklessly providing 

substantial assistance to Sabby, which, while registered as an investment adviser under Section 

203 of the Advisers Act [15 U.S.C. § 80b-3], by use of the mails and the means and 

instrumentalities of interstate commerce, directly or indirectly, engaged in fraudulent, deceptive, 

or manipulative practices or courses of business, and failed to adopt and implement written 

policies and procedures reasonably designed to prevent violations of the Advisers Act and the 

rules thereunder by Sabby and its supervised persons.   

129. By reason of the foregoing, Mintz, directly or indirectly, aided and abetted, and, 

unless restrained and enjoined, will again aid and abet violations of Sections 204 and 206(4) of 

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the Advisers Act [15 U.S.C. §§ 80b-4 and 80b-6(4)] and Rules 204-2 and 206(4)-7 thereunder 

[17 C.F.R. §§ 275.204-2 and 275.206(4)-7]. 

PRAYER FOR RELIEF 

 WHEREFORE, the Commission respectfully requests that this Court enter a judgment: 

1. Finding that Mintz and Sabby violated the federal securities laws and regulations 

alleged in this Complaint;  

2. Permanently restraining and enjoining Mintz and Sabby from violating the federal 

securities laws and regulations alleged in this Complaint;  

3. Ordering Mintz and Sabby to disgorge all ill-gotten gains received as a result of 

their unlawful conduct plus prejudgment interest thereon pursuant to Sections 21(d)(3), (d)(5), 

and (d)(7) of the Exchange Act [15 U.S.C. § 78u(d)(3), (5), (7)];  

4. Ordering Mintz and Sabby to pay civil penalties pursuant to Section 21(d)(3) of 

the Exchange Act [15 U.S.C. § 78u(d)(3)] and/or Section 209(e) of the Advisers Act [15 U.S.C. 

§ 80b-9(e)]; and 

5. Granting such other and further equitable relief to the Commission as the Court 

deems just and appropriate. 

 

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JURY TRIAL DEMAND 

 Pursuant to Rule 38 of the Federal Rules of Civil Procedure, the Commission demands a 

jury trial on all the issues so triable. 

Dated: June 12, 2023    Respectfully submitted, 

 

Of Counsel:     _s/_Daniel J. Maher_______________________ 
Amy L. Friedman    Daniel J. Maher (Mass. Bar ID No. 654711) 
Christopher R. Mathews   Edward J. Reilly (VA Bar ID No. 82562) 
      U.S. SECURITIES AND EXCHANGE COMMISSION  
      100 F Street NE 
      Washington, DC 20549   
      Phone: (202) 551-4737 (Maher) 
      Email: [email protected] (Maher)  
  
 
DESIGNATION OF AGENT FOR SERVICE UNDER LOCAL CIVIL RULE 101.1(f) 
 
 In accordance with Local Civil Rule 101.1(f), the undersigned hereby makes the 

following designation for the receipt of service of all notices or papers in this action at the 

following address: 

 United States Attorney’s Office 
 District of New Jersey 
 Attention: David E. Dauenheimer 
 Deputy Chief, Government Fraud Unit 
 970 Broad Street, Suite 700 
 Newark, NJ 07102-2534 
 
Dated: June 12, 2023 
 
      Respectfully submitted, 
 
      _s/_Daniel J. Maher_______________________ 
      Daniel J. Maher (Mass. Bar ID No. 654711) 
      Edward J. Reilly (VA Bar ID No. 82562) 
      U.S. SECURITIES AND EXCHANGE COMMISSION  
      100 F Street NE 
      Washington, DC 20549   
      Phone: (202) 551-4737 (Maher) 
      Email: [email protected] (Maher)  

Case 2:23-cv-03201   Document 1   Filed 06/12/23   Page 34 of 36 PageID: 34



A
PPE

N
D

IX
 A

 

1 
 

Issuer 
Fund(s) 

Engaged in 
Trading 

Locates 
N

um
ber 

of 
O

ccasion
s Locates 
D

enied  

Total N
aked Short Sales 

Total N
aked 

Short Sales 
Shares &

 
Proceeds 

Profit A
fter A

cquiring 
Shares For D

elivery 
D

ate R
ange 

R
eset 

Provision 
O

rders W
ith False 

R
epresentations 
C

oncerning 
Locates 

Short Sale O
rders 

M
ism

arked as 
Long Sales 

Issuer 1  

 

 

W
arrant 

Fund and 
H

ealthcare 
Fund 

 
 

67,760 
1,100 

68,860 

$438,578 

$202,810 
3/15/2017 – 
3/17/2017 

N
o 

Issuer 2  
W

arrant 
Fund and 
H

ealthcare 
Fund 

 
 

877,540 
0 

877,540 

$1,470,521 

$347,270 
7/26/2017 

N
o 

Issuer 3  
W

arrant 
Fund and 
H

ealthcare 
Fund 

45 
 

280,150 
0 

280,150 

$727,818 

$307,390.75 
7/28/2017 – 
7/31/2017 

N
o 

Issuer 4  
W

arrant 
Fund 

 
 

0 
381,642,544 

381,642,544 

$922,689 

$204,169.89 
6/25/2018 – 
7/6/2018 

N
o 

Issuer 5  
W

arrant 
Fund 

 
 

0 
527,778 
   

527,778 

$412,241 

       
 

$81,691 
7/11/2018 – 
7/12/2018 

Y
es.  N

aked 
short sold 
400,150 shares 
in advance of a 
w

arrant 
conversion 
price reduction 
effective July 
12, 2018, and 
exercised 
w

arrants after 
the conversion 
price reduction. 

Issuer 6  
W

arrant 
Fund 

 
 

7,638,623 
0 

4,596,514 

$329,597 

$83,222 
7/20/2018 – 
7/23/2018 

N
o 

Case 2:23-cv-03201   Document 1   Filed 06/12/23   Page 35 of 36 PageID: 35



A
PPE

N
D

IX
 A

 

2 
 

 

Issuer 7  
W

arrant 
Fund 

 
 

210,939 
0 

196,262 

$343,226 

$341,184 
2/25/2019 – 
3/5/2019 

N
o 

Issuer 8  
W

arrant 
Fund 

 
 

119,181 
0 

119,181 

$944,101. 

$345,242. 
5/1/2019 – 
5/6/2019 

N
o 

 
 

Case 2:23-cv-03201   Document 1   Filed 06/12/23   Page 36 of 36 PageID: 36