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Two Florida brothers pleaded guilty Wednesday in New York federal court to insider trading charges related to their purchase and sale of securities of the company that eventually merged with former President Donald Trump’s social media firm.
The brothers, Michael Svhartsman and Gerald Shvartsman, earned more than $22 million in illegal profits by trading in securities of the shell company, Digital World Acquistion Corp., in October 2021 after learning of non-public information that DWAC planned a merger with the privately held Trump Media & Technology Group, prosecutors said.
Although that merger was announced in late October 2021, it only was completed last month in a deal that led to Trump Media becoming a publicly traded company.
A third defendant in the case, former DWAC board member Bruce Garelick, has pleaded not guilty to securities fraud charges that allege he also purchased DWAC securities on the open market after learning of non-public information about the merger plan.
Garelick, who had also been chief strategy officer of Michael Shvartsman’s Miami-based venture capital firm, Rocket Capital, is due to stand trial in late April in Manhattan federal court.
No one associated with Trump Media, which owns the Truth Social app, has been accused of wrongdoing in the case.
Michael Shvartsman, 53, and Gerald Shvartsman, a 46-year-old who owns a furniture manufacturing company, are scheduled to be sentenced on July 17 by Judge Lewis Liman in Manhattan federal court.
Federal sentencing guidelines recommend that Michael Shvartsman, who netted $18.2 million in illegal trading profits, receive between 41 to 51 months in prison, according to his plea agreement.
Sentencing guidelines recommend that Gerald Shvartsman, who netted about $4.6 million in illegal trading profits, receive a prison term of between 33 and 41 months.
Liman is not required to sentence the brothers according to the guidelines, which also recommend the men each be fined between $15,000 and $5 million.
As part of his plea agreement, Michael Shvartman also agreed to forfeit $18.2 million to the federal government, and any right or title to a $14 million luxury yacht named “Provocateur,” and its three Jet Skis, which were purchased with profits from the trades.
“Insider trading is cheating, plain and simple, and today’s convictions should remind anyone who may be tempted to corrupt the integrity of the stock market that it will earn them a ticket to prison,” Manhattan U.S. Attorney Damian Williams said in a statement after the brothers pleaded guilty.
The Shvartsmans in 2021 had been invited to invest in DWAC and another so-called special purpose acquisition company, and after signing non-disclosure agreements received information about Trump Media being a potential target of a merger plan, according to an indictment.
Those agreements barred the brothers from using that information to buy securities related to the deal.
“The defendants also tipped others about the upcoming merger, inducing further trades in DWAC securities on the basis of the [confidential information] they had obtained subject to their non-disclosure agreement and through” an associate, Garelick, who had been placed on DWAC’s board, the Manhattan U.S. Attorney’s Office said in a statement.
Trump Media mentioned the criminal case in a regulatory filing Monday.
“These individuals have no affiliation with TMTG and — on information and belief — TMTG is not the target of any DOJ [Department of Justice] enforcement action,” the company said in the filing with the Securities and Exchange Commission.
