Feds Accuse 3 Investors of Insider Trading Linked to Trump Media SPAC Deal

The Department of Justice in Washington on Jan. 14, 2020. Samira Bouaou/The Epoch Times

The Justice Department has accused three Florida men of insider trading in Digital World Acquisition Corp (DWAC) based on confidential information obtained before the special purpose acquisition company publicly announced plans to merge with former President Donald Trump’s social media company.

Michael Shvartsman, his brother Gerald Shvartsman, and Bruce Garelick made over $22 million in illegal profits in late 2021 based on their access to confidential information about DWAC’s planned merger with Trump Media & Technology Group (Trump Media), prosecutors alleged on June 29.

Neither Trump nor his company, which operates the Truth Social app, face any charges in relation to the allegations against the trio.

Trump, who is the Republican frontrunner in the 2024 presidential race, faces a number of civil and criminal investigations, which he has denounced as a plot meant to thwart his White House run.

The planned merger between DWAC, a special purpose acquisition company (SPAC), and Trump Media has not been finalized.

The Justice Department announced the charges against the three men as part of a string of allegations of illegal trading brought against a total of 10 defendants, including a Pfizer employee and a police chief.

“Insider trading is not a quick buck,” U.S. Attorney Damian Williams said in a statement. “It’s cheating. It’s a bad bet. It’s a ticket to prison.”

Each of the three defendants in the DWAC-related insider trading case faces five to seven conspiracy and fraud charges that could result in decades behind bars.

All three were arrested in Florida on Thursday.

‘Exploited Confidential Information’

Prosecutors said Thursday that the three accused “sophisticated investors” had been invited to invest in DWAC and after signing non-disclosure agreements (NDA) were provided with confidential information that one of the acquisition targets was Trump Media.

Among the terms of the NDA was that they couldn’t use any so-called material, non-public information (MNPI) to buy or sell securities on the open market, per the Justice Department.

After the three individuals made initial investments in DWAC through its initial public offering process, Garelick was given a seat on the board of directors of DWAC, which provided him with access to “valuable” information about the planned merger with Trump’s social media company.

“After learning MNPI through his role on DWAC’s board, [Garelick] provided updates to his alleged co-conspirators—which he called “intelligence”—about the status of the merger negotiations and the timing of a public merger announcement,” prosecutors alleged.

Based on this confidential information, the three defendants then allegedly bought millions of dollars of DWAC securities on the open market before news of the planned merger with Trump Media became public.

After the merger was announced publicly, the defendants’ stock and warrant holdings in DWAC rose in value substantially, at which point they sold them for “significant profit,” prosecutors said.

“In violation of duties they owed to DWAC, the defendants exploited confidential information they possessed regarding DWAC’s target, its plans, and its negotiations in order to execute profitable and timely trades,” per an indictment filed in the U.S. District Court, Southern District of New York (pdf).

‘Unprecedented Attack’

In a separate complaint (pdf) against the trio brought by the Securities and Exchange Commission (SEC), the agency called for permanent injunctions against the three defendants to prevent them from selling any more securities related to DWAC.

The SEC also called for them to forfeit all “ill-gotten gains” plus interest and penalties.

Neither DWAC nor Trump Media immediately responded to a request for comment from The Epoch Times.

The defendants’ attorney, Grant Smith, was not immediately available for comment, but he declined to remark on the charges when queried by Reuters.

While the charges against Garelick and the Shvartsman brothers do not implicate Trump or anyone at Truth Social, they’re part of investigations that have prevented the company from receiving SEC approval for the merger with DWAC and going public.

Truth Social was launched last year as an alternative to social media platforms Twitter and Facebook. It caters to conservatives, many of whom have said they have experienced discrimination on mainstream platforms.

DWAC filed an S4 plan in October 2021 to merge with Trump Media, which owns Truth Social, but those plans have remained in limbo.

Trump Media has accused regulators of slow-rolling the merger approval and has requested a Congressional probe.

A letter from Trump Media to Congressional lawmakers earlier this year accused the SEC of engaging in “egregious conduct and blatant politicization” in postponing the platform’s merger plans multiple times since 2021.

“America’s cherished free speech tradition is under unprecedented attack by Big Tech companies working hand-in-glove with censorious government agencies, powerful media outlets, and well-connected political operatives,” wrote Scott Glabe, the general counsel at Trump Media, in the letter.

“The obvious bias of SEC leadership irrevocably taints the agency’s ability to conduct an impartial inquiry,” he argued.

“We therefore seek immediate congressional action to investigate these abuses, ensure documents are preserved, and uphold the rule of law,” he added in the letter, which was addressed to the Republican chairmen of the House Judiciary, Oversight, and Financial Service Committees.

The SEC did not reply to an earlier request for comment.