Two individuals, Michael Shvartsman, aged 53, and his brother Gerald Shvartsman, aged 46, have pleaded guilty to charges of securities fraud in Manhattan's U.S. District Court. The guilty pleas come in connection with insider trading related to the public listing of former U.S. President Donald Trump's media venture.
The brothers, along with Rocket One Capital's chief investment officer, Bruce Garelick, were accused of illicitly trading on nonpublic information regarding Trump Media & Technology Group's (TMTG) plans to go public via a merger with a blank-check company. TMTG, known for operating Truth Social, Trump's social media platform, attracted substantial attention amid the charged political climate.
Prosecutors alleged that the trio, after signing confidentiality agreements in June 2021, learned of the impending merger with Digital World Acquisition, a blank-check firm. Despite the agreements obliging them to keep such information confidential, they proceeded to trade Digital World securities upon learning of the impending merger. This led to illegal profits totaling $22 million when they sold their holdings after the merger's public announcement on October 20, 2021.
In court, both Michael and Gerald Shvartsman admitted to their wrongdoing, acknowledging their awareness of the legal and ethical violations involved in trading on insider information. "I've made a terrible mistake," said Gerald Shvartsman at the hearing.
U.S. Attorney Damian Williams emphasized the severity of insider trading, describing it as plain cheating. The sentencing for the Shvartsmans is scheduled for July 17, with securities fraud carrying a maximum prison term of 20 years. However, actual sentences are determined by judges based on various factors, with the average federal fraud case resulting in a two-year prison term.
Meanwhile, Trump Media & Technology Group, which went public in late March, has faced volatility in its share prices amid speculation driven by enthusiasm for Donald Trump. Recent disclosures revealing substantial losses for Truth Social's parent company have contributed to fluctuations in TMTG's stock value.
Trump Media finds itself entangled in legal disputes with co-founders Wesley Moss and Andrew Litinsky in Delaware and Florida. The founders have accused the company of attempting to dilute their stake improperly, while Trump Media has countered by claiming that Moss and Litinsky failed to earn their shares legitimately, seeking to strip them of their ownership.
As the legal proceedings unfold and the fallout from the insider trading case continues, Trump Media's journey into the public domain remains fraught with challenges and uncertainties.
