Two investors in former President Donald Trump’s social media company pleaded guilty Wednesday.
Two investors in former President Donald Trump’s social media company pleaded guilty on Wednesday to insider trading in connection to the recent merger that ultimately took the company public.
Florida venture capitalists Michael Shvartsman and Gerald Shvartsman entered the pleas in a New York court to one count of securities fraud, which can carry a maximum sentence of 20 years in prison, according to prosecutors in a news release.
“Michael and Gerald Shvartsman admitted in court that they received confidential, inside information about an upcoming merger between DWAC and Trump Media and used that information to make profitable, but illegal, open-market trades,” Damian Williams, the U.S. Attorney for the Southern District of New York, said in the release issued Wednesday.
Prosecutors alleged that the pair, who are brothers, made more than $22 million in illegal profits by trading before the announcement that Digital World Acquisition Company (DWAC) was going to merge with the Trump Media & Technology Group, which operates Truth Social. The two companies merged last month, and Trump Media last week started trading on the Nasdaq.
Shares of DWAC, a so-called “blank check” company, spiked after it publicly disclosed it would merge with Trump Media in 2021.
“Insider trading is cheating, plain and simple, and today’s convictions should remind anyone who may be tempted to corrupt the integrity of the stock market that it will earn them a ticket to prison,” said Mr. Williams.
During a court hearing, the two brothers said in court that what they were doing was illegal when they traded information that shouldn’t have been released to the public.
“I’ve made a terrible mistake,” Gerald Shvartsman said, according to media reports.
The Shvartsmans are scheduled to be sentenced on July 17. While securities fraud carries a maximum sentence of 20 years in prison, any sentence would be imposed by the judge based on a range of factors. The average prison sentence in federal fraud cases in the United States last year was around two years.
Prosecutors said the trio signed confidentiality agreements in June 2021 when they were approached to become early investors in Digital World Acquisition, the blank-check company. The agreements required them to keep information they learned confidential and not trade the company’s securities in the open market, prosecutors said.
After hearing the company was in merger talks with Trump Media, prosecutors said the trio tipped others and bought DWAC securities, selling them after the deal was announced on Oct. 20, 2021, to make a total of $22 million in illegal profit.
Prosecutors also alleged that the pair and another individual, Bruce Garelick, who was a top official in DWAC, told co-workers and friends about the coming deal despite the nondisclosure agreement. They said the three provided that information to neighbors and employees, which allowed those people to purchase securities in the company before it was made public.
There are no allegations that President Trump was involved in the alleged scheme, and he hasn’t publicly commented on their guilty pleas Wednesday.
Mr. Garelick, meanwhile, is scheduled to face a trial over his alleged involvement in the scheme later this month.
‘DJT’ Stock Update
After Trump Media was publicly listed in late March under the “DJT” stock ticker, its shares have been on a wild ride fueled by enthusiasm for President Trump, the Republican presidential candidate in November’s election.
The stock shed some of its early gains this week as Truth Social’s parent company disclosed it had lost more than $58 million in 2023. Its shares were trading at around $51.60 on Wednesday morning, making the former president’s stake worth about $4 billion, though he is not allowed to sell or borrow against it for six months.
The firm is also involved in legal battles in Delaware and Florida with co-founders Wesley Moss and Andrew Litinsky, who have accused the company of trying to improperly dilute their stake. Trump Media has argued they failed to earn their shares and seeks to strip them of their ownership.
Top officials in the company, however, had a rosy outlook for the future in a statement released Tuesday.
In the statement, Trump Media CEO Devin Nunes said the company “has no debt and over $200 million in the bank, opening numerous possibilities for expanding and enhancing our platform.” He added that the firm will “take full advantage of these opportunities to make Truth Social the quintessential free-speech platform for the American people.”
“DWAC overcame several challenges last year to consummate our merger with TMTG and emerge as a united, debt-free, publicly traded company. Looking toward the future, TMTG is poised to rapidly move our business plans forward,” said Trump Media Director Eric Swider.
Reuters contributed to this report.
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