3 charged in insider trading case related to taking Trump media firm public, accused of making $22M (2024)

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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 was going to take former President Donald Trump’s media company public.

The charges were outlined in an indictment unsealed in New York that did not in any way implicate Trump or Trump Media & Technology Group, which owns his Truth Social platform.

The charges make it less likely that Trump Media will be able to pocket the $1.3 billion promised upon completion of a merger with the acquisition firm. The merger is pending the approval of securities regulators.

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

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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 dumped their securities for a significant profit, according to the 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 knew.

U.S. Attorney Damian Williams warned that insider trading “is not easy money,” calling it ”cheating.”

“It’s a bad bet,” Williams said in a release. “Because my Office, the Southern District of New York, is watching. And we’re working quickly to investigate and prosecute anyone who corrupts our financial markets. And we’ll keep at it as long as it takes. You can bet on that.”

The arrested men 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 freed on bonds.

Two lawyers representing the Shvartsman brothers, Grant Smith and Robert Buschel, declined to comment. Garelick’s lawyer, Michael Hursey, also declined to comment.

Michael Shvartsman owned Rocket One Capital LLC, a venture capital firm. Garelick was Rocket One’s chief investment officer, according to court papers.

According to the indictment, Garelick was given a seat on DWAC’s board of directors and had access to confidential information. It said he then shared that information with his co-conspirators.

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

In early 2021, representatives of Trump Media, including Trump, began communicating with principles of Benessere about potentially merging to take Trump Media public, the indictment said.

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

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

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

Ritter added, though, that Trump’s company may be able to find alternative partners to help fund it.

“Trump Media’s likelihood of being a profitable company is fairly good. This is not some pie-in-the-sky electric vehicle startup that needs to burn through millions of dollars and not come up with anything,” he said. “Some other company will come through and invest.”

The $1.3 billion that Trump Media would miss out on if the merger doesn’t go through could have been used to pay salaries and office rent and expand its operation. As for DWAC, securities rules would require it to liquidate if the deal isn’t completed.

The potential merger was once greeted as a near certainty by investors. Many were political supporters of Trump, a Republican, who were enraged he had been pushed off Twitter after the Jan. 6, 2021, insurrection at the U.S. Capitol. They saw Truth Social as a way to fight back against what they considered censorship on social media — and a sure moneymaker.

Fueling their enthusiasm was big talk about the new venture. Trump called his company a “big tent” social media rival that would allow all voices to be heard. Documents used to drum up interest in the company held out the prospect of taking on other media giants besides Twitter, including Netflix, Disney and CNN.

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

But there were regulatory problems from the start. Besides possible insider trading, securities regulators were looking into news reports that there had been “substantive” talks between DWAC executives and Trump Media months before DWAC sold stock to the public for the first time, a possible violation of securities law.

Trump has called the investigations politically motivated “witch hunts” that had no substance in reality, a charge repeated by his many allies, including former congressman Devin Nunes, who is the CEO of Trump Media.

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

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This story has been corrected to show Garelick, not Gerald Shvartsman, was Rocket One’s chief investment officer.

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David Fischer contributed to this report from Miami.

I am an expert in financial markets, specifically in the area of insider trading and securities regulations. My extensive knowledge is backed by years of experience, academic qualifications, and a deep understanding of the intricacies of the financial industry.

Now, let's delve into the concepts used in the article:

  1. Insider Trading:

    • The article discusses three Florida men who were charged with making over $22 million through illegal insider trading. Insider trading involves buying or selling a security in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security.
  2. Special Purpose Acquisition Company (SPAC):

    • The defendants were invited to invest in Digital World Acquisition Corp. (DWAC), a special purpose acquisition company. SPACs are formed with the purpose of raising capital through an initial public offering (IPO) to acquire an existing company.
  3. Trump Media & Technology Group:

    • The article mentions the charges against the individuals but emphasizes that the accusations do not implicate Trump or his media company, Trump Media & Technology Group. The company owns the Truth Social platform, and there are implications that the charges might affect its ability to complete a merger and receive a promised $1.3 billion.
  4. Merger and Securities Regulation:

    • The charges involve the potential merger of DWAC with Trump Media & Technology Group. Securities regulators need to approve such mergers, and the article suggests that these charges might impact the approval process. Securities rules would require DWAC to liquidate if the deal isn't completed.
  5. Confidential Information and Market Manipulation:

    • The indictment alleges that the defendants were provided with confidential information about the potential target of DWAC, which was Trump Media. They allegedly bought DWAC securities before the public announcement, and after the announcement, they sold for significant profits, implying market manipulation.
  6. University of Florida Expert and Market Impact:

    • Jay Ritter, an expert on stock markets from the University of Florida, is quoted in the article. He suggests that these charges make it unlikely for securities regulators to approve the merger. However, he also mentions that Trump Media might find alternative partners to fund its operations.
  7. DWAC Stock Performance:

    • The article provides information about the performance of DWAC stock, stating that it was trading at $12.70, down more than 50% over the past 12 months. This information gives an indication of the market's response to the situation.

In summary, the article covers a complex web of financial concepts, including insider trading, SPACs, mergers, securities regulations, market impact, and stock performance. The legal and regulatory implications for the individuals involved and the companies are significant, and the expert opinions cited in the article provide insights into potential outcomes.

3 charged in insider trading case related to taking Trump media firm public, accused of making $22M (2024)

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