(Bloomberg) - Three investors in the listing vehicle that was poised to take Donald Trump’s fledgling media company public were charged with using inside information about the plans to make more than $22 million in illegal trades.
Federal prosecutors say the three Florida men, who were arrested and charged in an indictment unsealed Thursday, were invited to invest in the special purpose acquisition company, Digital World Acquisition Corp., after signing nondisclosure agreements with it and another SPAC.
They got confidential information about possible targets of the SPAC, including Trump’s company, Trump Media & Technology Group Corp., the US alleges. Digital World agreed to merge with Trump Media in 2021. When plans for the deal were announced, the SPAC’s shares soared.
Trump isn’t charged in the case and isn’t included in any of allegations in the indictment, which was unsealed in federal court in Manhattan.
Conspiracy, Securities Fraud
The three investors are Michael Shvartsman, 52, the chief executive officer of Rocket One Capital LLC, his brother Gerald Shvartsman, 45, and Bruce Garelick, 53, a Rocket executive and a former member of the SPAC’s board. Each was charged with conspiracy and several counts of securities fraud.
If found guilty, they each face as many as 25 years in prison on the most serious fraud charges, though they would probably get less time under federal sentencing guidelines.
“Insider trading is not a quick buck. It’s not easy money,” Damian Williams, the US attorney in Manhattan, said in a statement announcing the indictment. “We’re working quickly to investigate and prosecute anyone who corrupts our financial markets.”
In a parallel case, the US Securities and Exchange Commission filed civil insider trading charges against the three men and Rocket One.
SPACs Under Microscope
Special purpose acquisition companies are shells designed to buy another company with the investment money they attract. SPACs quickly evolved from an obscure corner of the financial world to an investing craze before coming under more government scrutiny.
Read More: SPAC Trades May Have Made 888% Profit. Some Face SEC Scrutiny
On Oct. 20, 2021, after the close of trading, a Trump spokesperson announced the planned merger between Trump Media and Digital World, the SPAC. The announcement sent the SPAC’s share and warrant prices up.
Garelick then sold his Digital World securities for a $49,700 profit, according the the government. Gerald Shvartsman sold his for a $4.6 million profit, and his brother Michael sold off a Rocket One position for a profit of $18.2 million, prosecutors allege.
Launched last year, Truth Social became Trump’s social network of choice after he was banned from Twitter and suspended from Meta Platforms Inc.’s Facebook and Instagram after the Jan. 6, 2021, Capitol insurrection. But Trump Media has grappled with uncertainty as it waits for regulators to approve its merger with Digital World.
The case is US v. Shvartsman, 23-cr-307, US District Court, Southern District of New York (Manhattan).
(Updates with details of charges, statement from prosecutor and context on SPACs. An earlier version of this story corrected a spelling in deck below headline.)
By Bob Van Voris
With assistance from Erik Larson
