2 plead guilty in Trump Media insider-trading trial
Two brothers from Miami pleaded guilty on Wednesday in federal court in Manhattan for their role in a nearly $23 million insider-trading scheme surrounding the 2021 announcement that former President Donald Trump’s social media company planned to merge with a cash-rich shell company.
Michael and Gerald Shvartsman, who had pleaded not guilty to securities fraud charges last summer, were set to go on trial later this month. But the brothers decided this week to forgo a trial, instead entering their guilty pleas before Judge Lewis J. Liman of US District Court for Southern New York.
Each man pleaded guilty to one count of securities fraud.
Michael Shvartsman, according to federal prosecutors, was the mastermind of the scheme to profit from the announcement, in October 2021, that Trump Media & Technology Group planned to merge with Digital World
Acquisition Corp, a shell company that had just raised $300 million in an initial public offering. The authorities charged Shvartsman, 53, a Miami financier, with making $18.2 million in illicit trading profits; and his brother, 46, who owns an outdoor furnishing store in Miami, with raking in $4.6 million.
Shvartsman, who ran a venture investment firm called Rocket One, used some of the proceeds from the scheme to buy a $14 million luxury yacht that he named Provocateur.
The brothers each face prison sentences of up to 20 years. Their plea agreements with the government recommend a sentence of roughly four to five years for Michael Shvartsman, and three to four years for Gerald Shvartsman.
Liman, who is not bound by those recommendations, set sentencing for both men for July 17.
The brothers are Canadian citizens and could face deportation at the end of their sentences.
Gerald Shvartsman told Liman that what he did was wrong and “I will pay dearly for it for the rest of my life.” His brother told the judge, “I understand these trades were unlawful.”
As part of their plea agreements, the two brothers agreed to forfeit all of their trading gains.
A third man charged in the scheme, Bruce Garelick, who had worked at Rocket One, is scheduled to go to trial at the end of the month. The authorities have said that he made less than $50,000 but was critical in giving the brothers nonpublic inside information about the merger talks between Trump Media and Digital World.
Garelick, a former hedge fund manager, became a board member of Digital World before it went public but after Rocket One had become an investor. A lawyer for Garelick did not respond to a request for comment.
OTHERS UNDER SCRUTINY
Trump Media, the parent company of the social media platform Truth Social, completed its merger with Digital World a little more than a week ago. The deal has added billions of dollars to Trump’s net worth and boosted the market valuation of Trump Media even though it lost $58 million last year and took in just $4.1 million in advertising revenue on Truth Social.
The federal authorities investigated a handful of other people who were associated with the Shvartsmans and had made profitable trades around the time of the merger announcement, according to court filings. Among them was Anton Postolnikov, a Russian American financier who made $22.8 million in trading profits. But none of those individuals were charged with wrongdoing, or found to have any ties to anyone associated with Trump Media.
Michael Shvartsman’s plea agreement made reference to his “causing” a friend, a business associate and a neighbour to make trades in Digital World securities in advance of the merger announcement.
No one from Trump Media was charged with any wrongdoing, either. The insider-trading investigation contributed to a more than two-year delay in completing the merger. The deal was also held up by a Securities and Exchange Commission investigation into what regulators said were inappropriate merger talks between the companies. It was resolved last summer, with Digital World agreeing to pay an $18 million fine.