New York (CNN) — Federal prosecutors arrested three investors on Thursday on insider trading charges related to a deal to take former President Donald Trump’s media business public.
According to the indictment, the three individuals together made more than $22 million in October 2021 by illegally trading on nonpublic knowledge of Digital World Acquisition Corporation’s secret plan to buy Truth Social owner Trump Media & Technology Group.
The defendants allegedly tipped off friends and colleagues, who also purchased securities in Digital World before the blank-check firm’s Trump Media deal became public.
Once the deal was announced, the value of those securities spiked. The defendants and individuals they tipped off then sold their securities for a significant profit, according to prosecutors.
The three men charged in the indictment are Michael Shvartsman, Gerald Shvartsman and Bruce Garelick, who served as a director on Digital World’s board of directors. All three have surrendered to authorities and are expected to appear in federal court in Miami later Thursday, a law enforcement official said.
The Securities and Exchange Commission also filed civil insider trading charges against the three investors.
There is no allegation that Donald Trump had any involvement at all in the alleged insider trading. Trump Media did not respond to a request for comment.
However, the new charges add to the controversy surrounding the Trump deal, which has raised eyebrows from legal experts and drawn scrutiny from regulators and prosecutors.
Nearly two years after being announced, the merger has yet to be completed and last month the Nasdaq stock exchange threatened to delist Digital World because it hadn’t filed its quarterly report.
The indictment says that the defendants passed on Digital World’s confidential information to friends on a trip to Las Vegas, to Michael Shvartsman’s neighbors and to Gerald Shvartsman’s employees at a furniture supply store. Altogether, those contacts purchased tens of thousands of securities ahead of the merger announcement.
According to the indictment, the three defendants were invited to invest in Digital World as well as another special purpose acquisition company, or SPAC.
After signing non-disclosure agreements, prosecutors say they were provided confidential information that Trump Media was a potential target of the SPACs.
Garelick was given a seat on Digital World’s board of directors, giving him further insight into the SPAC’s confidential merger plans with Trump Media.
Prosecutors say Garelick provided to his co-conspirators what he described as “intelligence” about the Trump merger negotiations and the timing of a public merger announcement.
In violation of the non-disclosure agreements they signed, the defendants bought millions of dollars of Digital World securities on the open market and shared the inside information with other associates who also purchased securities before the merger was made public before the Trump Media merger news was made public, according to the indictment.
Digital World shares skyrocketed following the Trump Media merger news as investors saw it as a way to bet on the fortunes of the former president.
“Rather than adhere to his duty as an insider, we allege that Garelick, together with the Shvartsmans, monetized that information to generate over $20 million in illicit profits,” Gurbir Grewal, director of the SEC’s division of enforcement, said in a statement. “This case demonstrates the [SEC’s] ongoing commitment to exposing insider trading wherever it occurs, including in SPAC mergers.”
The-CNN-Wire
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