In a significant legal development, two of three men have pleaded guilty to insider trading linked to the merger that was set to take former President Donald Trump’s media company public.
The individuals involved, Michael Shvartsman, Gerald Shvartsman, and Bruce Garelick, reportedly made over $22 million through illegal trades by leveraging confidential information about the planned merger between Digital World Acquisition Corp. (DWAC) and Trump Media & Technology Group, the entity behind Truth Social.
Michael Shvartsman, 53, leader of the Miami-based investment group Rocket One Capital, and his brother Gerald, 46, admitted to fraud charges in front of Judge Lewis Liman in Manhattan.
Whereas Bruce Garelick, Rocket One’s chief investment officer, will face a trial on April 29.
According to the prosecutor, the three men involved in the case signed agreements in June 2021 that required them to keep certain information secret.
They were not allowed to share this information or use it to buy or sell the company’s shares. This was part of their deal when they were offered a chance to invest early in the company involved in the merger.
Upon discovering the merger discussions with TMTG, the group not only shared the privileged information but also engaged in purchasing Digital World’s securities.
They capitalized on this inside knowledge by selling their holdings right after the public announcement of the merger on October 20, 2021, which led them to amass an unlawful gain of $22 million.
In their court appearance, Michael and Gerald Shvartsman confessed to their awareness of the illicit nature of their actions, acknowledging the breach of trust involved in exploiting non-public information for personal gain.
During the trial, Michael Shvartsman Said, “I’ve made a terrible mistake.”
Both Michael Shvartsman and Gerald Shvartsman are scheduled to be sentenced on July 17. If found guilty of securities fraud, they may receive 20 years in jail.
However, considering the previous cases, it’s quite possible the judge will sentence them to only 2 years.
Since TMTG listed its shares publicly, it has seen potential growth due to Donald Trump‘s involvement.
This week, the stock experienced a setback after Truth Social’s parent company revealed a loss exceeding $58 million in 2023.
TMTG shares closed trading at $48.81 on Wednesday, valuing Trump’s holding at approximately $3.8 billion. However, restrictions prevent him from selling or leveraging it for six months.
Trump Media and co-founders Wesley Moss and Andrew Litinsky are currently involved in legal disputes in Delaware and Florida.
They allege the company’s attempt to dilute their stake is improper, while Trump Media contends that they haven’t earned their shares and seeks to revoke their ownership.
This case not only underscores the legal risks associated with insider trading but also casts a shadow over the merger’s future, potentially impacting Trump Media’s ability to secure the promised $1.3 billion funding for expansion and operations.
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