3 indicted in insider trading case related to Trump media firm’s $22M publicity

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NEW YORK (AP) Three Florida men were charged Thursday with making more than $22 million through illegal insider trading before the public announcement that an acquisition firm would take former President Donald Trumps media company public.

The charges are outlined in an unsealed New York indictment that in no way implicates Trump or the Trump Media & Technology Group, which owns his Truth Social platform.

The charges make it more likely that Trump Media will pocket the $1.3 billion promised upon completing a merger with the acquisition company. The merger is pending approval by securities regulators.

According to the indictment, the men were invited to invest in the special purpose acquisition company, Digital World Acquisition Corp., and were given confidential information that DWAC was a potential target and another acquisition company, Benessere Capital Acquisition Corp., is Trump Media.

Authorities said the defendants bought millions of dollars of DWAC securities on the open market before news of the Trump Media business was made public. After the public announcement, the men disposed of their securities for a large profit, according to court papers.

The indictment said one of the defendants tipped off a neighbor to buy stock in DWAC, calling it a good bet without saying how he found out.

US Attorney Damian Williams warned that insider trading is not easy money, calling it cheating.

It was a bad bet, Williams said in a release. Because my Office, the Southern District of New York, is watching. And working quickly to investigate and prosecute anyone who disrupts our financial markets. And keep it as long as necessary. You can bet on that.

Those arrested were identified as Michael Shvartsman, 52, of Sunny Isles Beach, Florida; his brother, Gerald Shvartsman, 45, of Aventura, Florida; and Bruce Garelick, 53, of Fort Lauderdale, Florida.

All three made initial court appearances Thursday afternoon in Miami and were released on bond.

Two attorneys representing the Shvartsman brothers, Grant Smith and Robert Buschel, declined to comment. The Garelicks’ attorney, Michael Hursey, also declined to comment.

Michael Shvartsman owns Rocket One Capital LLC, a venture capital firm. Garelick is chief investment officer of Rocket Ones, according to court papers.

According to the indictment, Garelick was given a seat on DWACs board of directors and had access to confidential information. It said he then shared that information with his accomplices.

The indictment said that between June 2021 and November 2021, the men shared the secrets with their friends and employees, who also bought thousands of units of securities before the announcement of the merger with Trump Media & Technology Group. Typically, a special purpose acquisition company, or SPAC, is formed with the purpose of merging with a private company.

In early 2021, representatives of Trump Media, including Trump, began contacting Benessere principals about a potential merger to publicize Trump Media, the indictment said.

Between March and June 2021, Trump Media and Benessere entered into non-binding letters of intent to merge, it said.

The letters required confidentiality but allowed Benessere and its agents to share confidential information with investors in special purpose acquisition companies, the indictment said.

Jay Ritter, a University of Florida expert on stock markets who has followed Trumps media venture, said the new charges make it unlikely that securities regulators will approve the merger.

Ritter added, however, that Trumps company could find alternative partners to help fund it.

The odds of Trump Medias becoming a profitable company are pretty good. This isn’t some pie-in-the-sky electric vehicle startup that has to burn through millions of dollars and come up with nothing, he said. Another company will come and invest.

The $1.3 billion that Trump Media would have lost if the merger did not go through could have been used to pay salaries and office rent and expand its operations. As for DWAC, securities rules will require it to liquidate if the deal is not completed.

The potential merger was once hailed as a near certainty by investors. Many political supporters of Trump, a Republican, angrily blasted him on Twitter after the January 6, 2021 insurrection at the US Capitol. They saw Truth Social as a way to fight what they saw as social media censorship and a surefire moneymaker.

Fueling their enthusiasm is big talk about the new venture. Trump called his company a big social media rival that would allow all voices to be heard. The documents used in the release of interest in the company gave the possibility of acquiring other media giants besides Twitter, including Netflix, Disney and CNN.

Shortly after the proposed merger deal was announced in late 2021, DWAC stock rose from about a $10 initial offering price to more than $100, giving the combined company a potential market value in the billions billion dollars.

But there were regulatory problems from the start. Aside from possible insider trading, securities regulators are looking into news reports that there were important conversations between DWAC executives and Trump Media months before DWAC sold stock to the public for the first time, a possible violation in securities law.

Trump has called the politically motivated investigations witch hunts devoid of truth, a charge echoed by many of his allies, including former congressman Devin Nunes, who is the CEO of Trump Media.

DWAC stock was trading at $12.70 early Thursday afternoon, down more than 50% over the past 12 months.

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This story has been corrected to reflect that Garelick, not Gerald Shvartsman, is the chief investment officer of Rocket Ones.

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David Fischer contributed to this report from Miami.

Copyright 2023 The Associated Press. All rights reserved.

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