This is the year to get arrested and charged with federal crimes apparently.
Elizabeth Holmes is behind bars. Sam Bankman-Fried is under house arrest. MoviePass’s Ted Farnsworth was arrested. Frank’s Charlie Javice has been indicted. And yesterday, a venture capitalist who was one of the Trump SPAC board members—as well as two others—were arrested and charged with insider trading.
Whew. It would be great if, you know, people stopped breaking the law.
I’ve been reading through the charges against the Trump SPAC investors because I can’t help myself. Michael Shvartsman, 52, a nightclub owner-turned-venture capitalist, and his employee and investor Bruce Garelick, 53, are at the center of it, as is their VC firm Rocket One Capital, which has backed GoPuff and Airbnb, according to an archived version of its now-dark website. Colluding with Shvartsman’s younger brother, Gerald, the investors allegedly made more than $22 million from using inside information to trade securities of Digital World Acquisition Company, the SPAC that went public in 2021 before announcing it would merge with former President Donald Trump’s media company. Prior to the deal being announced, Shvartsman and Garelick invested in the shell company, and Garelick was put on the board of directors. Using his board position, Garelick allegedly told Shvartsman (who then allegedly alerted his brother) that the SPAC had identified Truth Social's parent company as its target before it was publicly known. All of those individuals went on to purchase shares on the public market and later sell them after the announcement, and make millions of dollars.
To make matters worse, the three of them allegedly ended up leaking the inside information—ahead of the public announcement—to a slew of friends and employees, including an employee at Gerald Shvartsman’s furniture store, who ended up telling his father, too.
Apparently, a junior employee at Rocket One Capital even emailed himself a note five days before the Trump Social announcement, writing in choppy shorthand: “DWAC stock** BUY 10 unit gives you warrant and full share can’t lose money. . . . bought 2m warrants b/c target is trump media.”
Insider trading is bad. So is emailing yourself that note.
The Shvartsman brothers and Garelick were arrested yesterday—adding to a growing list of reasons the deal to take Truth Social’s parent company public likely won’t go through. Earlier this month, Digital World told the Securities and Exchange Commission Garelick was resigning from the board. In its form, the shell company also reminded investors it was still under investigation over its registration statement, and that the SEC is seeking documents on topics like its due diligence of Trump’s media company, and relationships between Digital World and other entities, including its sponsor. In other words, Digital World still has a lot of other problems.
All of this is making a deal look rather unlikely. My condolences to Dinesh D’Souza, who is rather active on Truth Social. (He is one of the five people I follow.)
A Digital World spokesperson didn’t respond to a request for comment regarding the arrests, investigation, and subpoenas, or whether they still anticipate completing the deal. A phone number found on an archived version of Rocket One Capital’s website had been disconnected. Term Sheet reached out to several people affiliated with Garelick and Shvartsman, including cofounders of the fintech where Shvartsman is listed as CEO, Rocket Financial, but no one could be reached for comment.
Sometimes it’s fun to see what’s on someone’s website before it goes dark, so take a look at Rocket One Capital’s. I was particularly impressed by the first line of their firm’s vision statement, posted to the site: “Think of what you could achieve if you didn’t have to say, that can’t be done.”
Turns out there are some things that can’t be done—or at least shouldn’t be.
Not Boring…Less than a year after he had moved to Austin, venture capitalist Joe Lonsdale called (and emailed) the city’s then-mayor to propose that he and some of his friends pay for a one-mile, approximately $6- to $7-million underground tunnel system, built by Elon Musk’s Boring Company, that would connect his friends’ land around town. He said that the initial mile-long tunnel could spark interest from leadership for a citywide tunnel system that The Boring Company could ultimately build in partnership with the city. I was sent these details in response to a freedom-of-information request. Want to know what came of it? You can read the full story here.
A programming note…In observance of the holiday weekend, Term Sheet will not be in your inboxes this Monday or Tuesday. Enjoy the long weekend and Happy Fourth!
Until Wednesday,
Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.
