Wednesday, April 3, 2024

Two investors in Trump Media insider trading case plead guilty

 Florida venture capitalist Michael Shvartsman and his brother, Gerald Shvartsman, pleaded guilty Wednesday to participating in an insider trading scheme tied to the massive deal that made former President Donald Trump's social media actions public.

Both brothers pleaded guilty in New York to securities fraud, which carries a maximum penalty of 20 years in prison, according to federal prosecutors.

The brothers were arrested in June and charged with illegally trading on non-public information about a shell company's secret plan to buy Trump Media and Technology Group, the parent company of the social media network Truth Social.

“Michael and Gerald Schwarzman admitted in court that they received confidential and privileged information about an upcoming merger between DWAC and Trump Media and used that information to conduct lucrative, but illegal, open market transactions,” said Damian Williams, US Attorney for the South. The New York District said in a statement.

The indictment accused the brothers and a third person, Bruce Garelick, of making more than $22 million together in October 2021 by trading their inside knowledge of the deal.

Shares of the shell company Digital World Acquisition Corporation rose after the blank-check company publicly announced a deal to merge with Trump Media.

“Insider trading is fraud, pure and simple,” Williams said. “Today’s convictions should remind anyone who might be tempted to subvert the integrity of the stock market that doing so could earn them a ticket to prison.”

After years of legal and regulatory delays, the Trump Media merger finally closed last week, paving the way for owner Truth Social to go public.

Trump Media's stock price skyrocketed, creating a financial windfall for the former president, who is the dominant shareholder. Trump owns 78.8 million shares in Trump Media, a share valued at about $4.1 billion. Trump Media (DJT) shares fell 4% on Wednesday.

The frenzy began on Wall Street in October 2021 after Trump revealed plans to merge his new social media company with Digital World Acquisition Co., a special purpose acquisition company, or SPAC.

According to prosecutors, the Shwartzman brothers and Garelick, then a director on Digital World's board, informed friends and colleagues about the impending deal, allowing them to purchase securities in the SPAC before the deal with Trump Media became public.

The defendants passed confidential information about the impending deal with Trump Media to their friends. He traveled to Las Vegas and neighbors Michael Shvartsman and Gerald Shvartsman's employees at a furniture store.

There was no allegation in the indictment that Trump himself had any role in the alleged insider trading scheme.

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