The men made millions in illegal trades after being told in September 2021 that the firm, Digital World Acquisition, had finalized plans to merge with Trump Media & Technology Group, the owner of Trump’s social network Truth Social. That was before the news was publicly announced the next month.
The stock price skyrocketed after the announcement, to a high of $175 a share, and the men sold their shares for a significant profit. Digital World’s shares have since plunged to about $12 a share. Digital World and Trump Media have yet to merge because of ongoing federal investigations.
Neither Trump nor Trump Media are named in the indictment, which was unsealed in Manhattan federal court.
Attorneys representing the Shvartsman brothers declined to comment. Executives for Digital World and Trump Media, and a lawyer believed to be representing Garelick, did not respond to requests for comment.
The charges could further cloud the prospects of Digital World’s deal to merge with Trump Media. The proposed merger has been frozen for months amid an SEC investigation, financial filings show.
The SEC’s lawsuit also contains signs that it is investigating other irregularities in the merger plan between Digital World and Trump Media.
SPACs are generally required by SEC rules not to have had substantive discussions with a merger target before filing for an initial public offering, and DWAC said in its IPO filing with the SEC in September 2021 that it had “not selected” or had “any substantive discussions, directly or indirectly, with any business combination target.”
But in its lawsuit, the SEC said Garelick and the Shvartsman brothers were told in June 2021 by Digital World’s then-chief executive and chairman Patrick Orlando, who is referred to in the lawsuit as “Individual A,” that Digital World intended to pursue a merger with Trump Media. Garelick then texted his daughter “Wild possibility you might get a kick out of … your dad might be named to the ‘Trump Media Group’s Board of Directors.’”
Garelick, who was the chief strategy officer of Rocket One Capital, a Miami private equity firm, also shared details with Michael Shvartsman that he learned from Orlando about when the merger would be announced. Shvartsman, who was Garelick’s boss at Rocket One, shared that information with his brother, Gerald, the owner of an outdoor-furniture store, according to the SEC suit.
The men also shared the information with friends on a trip to Las Vegas, with Michael Shvartsman’s neighbors, and with Gerald Shvartsman’s furniture-store employees, SDNY prosecutors said.
In its lawsuit, the SEC said the men bought large stakes in Digital World based on the insider information, then sold all their shares within a day of the Trump Media merger announcement. Michael Shvartsman, through Rocket One, made $18 million in profits; Gerald Shvartsman made $4.6 million in profit; and Garelick, who was restricted from investing personally as a DWAC director, pocketed about $50,000.
Garelick and Michael Shvartsman were charged with six counts of securities fraud, and Gerald Shvartsman with four counts, each of which carries maximum sentences of up to 25 years in prison. They also face conspiracy charges.
Garelick resigned from the board last June after the company’s other directors received subpoenas related to the merger deal from federal prosecutors, SEC filings show.
Trump and congressional Republicans have accused the SEC of stalling the merger because of political bias. Digital World could be forced to liquidate and return $300 million to investors if it does not finalize the merger by Sept. 8, filings show. Attempts to extend that deadline via shareholder vote have been unsuccessful.
The Trump company launched Truth Social after Trump was suspended from Twitter following the Jan. 6, 2021, riot at the U.S. Capitol. It has become his main venue for online publishing in the run-up to the 2024 presidential campaign.
It’s unclear whether other charges could arise from the probes by the SEC or the U.S. attorney’s office. Digital World has noted investigations by both agencies in SEC filings in recent months.
A former Trump Media executive, Will Wilkerson, has shared internal documents with the SEC and the SDNY as part of a whistleblower case alleging other wrongdoing, including that the deal relied on “fraudulent misrepresentations … in violation of federal securities laws.”
“We’re working quickly to investigate and prosecute anyone who corrupts our financial markets,” U.S. Attorney Damian Williams said in a statement Thursday. “And we’ll keep at it as long as it takes.”
Shayna Jacobs in New York contributed to this report.