Brothers Sentenced for Insider Trading in Trump Media SPAC Merger

Two brothers, Michael and Gerald Shvartsman, have pleaded guilty to insider trading charges related to the merger of Digital World Acquisition Corp. (DWAC) and Trump Media & Technology Group (TMTG), the parent company of Truth Social. Prosecutors are seeking significant prison sentences for both, highlighting the flagrant nature of their actions and the substantial illicit profits they gained. The case also involves a third defendant, Bruce Garelick, convicted at trial, facing even longer imprisonment. This complex case underscores the severe consequences of insider trading and the ongoing scrutiny surrounding TMTG’s highly publicized merger.

Key Takeaways:

• Michael Shvartsman, a Florida venture capitalist, faces 46 to 57 months in prison for his role in an insider trading scheme that generated over $18 million in illegal profits.
• His brother, Gerald Shvartsman, faces a minimum of two years imprisonment after making $4.6 million through illicit trading.
• Bruce Garelick, a third defendant, was convicted at trial and faces a recommended sentence of 108 to 135 months in prison, despite earning significantly less than the Shvartsman brothers.
• All three defendants used non-public information about the impending merger between DWAC and TMTG to profit from trading DWAC securities before the public announcement.
• The case highlights the penalties associated with insider trading, including substantial prison sentences and potential deportation for non-U.S. citizens.

The Shvartsman Brothers’ Guilty Pleas and Sentencing Recommendations

Michael and Gerald Shvartsman, brothers and key figures in this insider trading scheme, pleaded guilty in April 2024. The Manhattan U.S. Attorney’s Office has filed sentencing memorandums outlining their recommended punishments. For Michael, who amassed over $18 million in illegal profits, prosecutors are seeking a sentence between 46 and 57 months. The prosecution characterized his actions as “flagrant, manipulative, and motivated by sheer greed.” They acknowledge that this recommendation aligns with federal sentencing guidelines. However, Michael’s defense lawyers are arguing for a lesser sentence, citing his cooperation and that he’s already suffered significant financial and reputational damage. They claim, “He has lost his reputation and suffered humiliation both personally and professionally.”

The Prosecution’s Case Against Michael Shvartsman

Adding complexity to Michael Shvartsman’s case is the yacht “Provocateur,” a $14.7 million vessel he was ordered to forfeit. Prosecutors discovered this yacht, originally promised to the government, had been secretly leased for summer charters in the Mediterranean and subsequently moved to Italy, violating a court order. This, coupled with his failure to provide required financial statements to the Probation Office, paints a picture for the prosecution of someone attempting to evade legal ramifications: “Shvartsman exhibits a troubling pattern of acting as though he were above the law,” the prosecutors stated in their filing. The Probation Office, compounding these issues, recommends a 46-month sentence due to his non-compliance.

Gerald Shvartsman, who gained $4.6 million from the illegal trades, faces a recommended minimum of two years in prison from prosecutors, which is below the 37 to 46 months suggested by the guidelines. This contrasts with the Probation Office’s recommendation of one year and one day. Prosecutors describe Gerald as “a wealthy, successful businessman,” with a high income and substantial assets, emphasizing the purely gratuitous nature of his criminal enrichment: “His engagement in this scheme was driven by pure greed,” stated the prosecution. However, they also acknowledge that he was “the least culpable” among the three defendants.

The Defense’s Arguments for Leniency

Both brothers’ defense teams are vigorously advocating for more lenient sentences. Michael’s lawyers highlight the significant personal and financial repercussions, including professional setbacks and family distress, as sufficient punishment beyond imprisonment. His lawyers note that the full $18.2 million judgment has been paid. Gerald’s lawyer argues his imprisonment might bankrupt his furniture company, risking the jobs of more than 150 employees, and also cites his significant health issues like Crohn’s disease and a serious back injury as mitigating factors. They have requested house arrest instead of jail time, citing both the potential damage to workers at his company as well as serious health problems.

Bruce Garelick’s Conviction and Sentencing

Unlike the Shvartsman brothers who pleaded guilty, Bruce Garelick, formerly chief strategy officer of Michael Shvartsman’s Miami-based venture capital firm, Rocket One Capital, opted for a trial. Found guilty in May 2024 of insider trading, he faces a considerably harsher recommended sentence of 108 to 135 months in prison—a striking disparity despite generating a mere $49,000 in illegal profits, greatly underscoring the implications of being found guilty after trial, versus plea bargaining.

The Context of the Trump Media & Technology Group Merger

The crux of this insider trading case hinges on the merger between DWAC, a Special Purpose Acquisition Company (SPAC), and Trump Media & Technology Group (TMTG), a company majority-owned by former President Donald Trump. The merger, initially delayed, finally concluded in March 2024, resulting in the combined company trading under the ticker symbol DJT. The Shvartsman brothers and Garelick all leveraged non-public knowledge of this impending merger, obtained through non-disclosure agreements or through dealings with Garelick, to purchase DWAC securities. After the merger announcement, they swiftly sold their shares at a significantly inflated price, thereby profiting illegally from confidential information. The case, therefore, extends beyond the immediate culpability of the defendants to encompass broader concerns about ethical practices and regulatory oversight involved in high-profile mergers and company valuations.

Implications and Future Considerations

This case brings to light substantial issues within both financial markets and corporate governance. The substantial sentences proposed for these insider trading convictions clearly serve as a deterrent against future unethical activity; however, the contrast between the sentences of those who take a plea bargain versus trial is stark. The significant financial penalties further highlight the gravity of such offenses and the potential ramifications for both individuals and companies involved. The potential deportation of the Shvartsman brothers also underscores a further and significant consequence of these crimes for those who are not U.S. citizens. Further investigations and potential lawsuits, related to the merger, remain a possibility going forward as well.

The upcoming sentencing hearings will be closely watched, not only to determine the final sentences for the three defendants but also to assess the impact of this case on future regulatory oversight and enforcement in financial markets. The severity of the punishments, whether they meet the prosecution’s recommendations or not, will send a clear signal to others about the dangers of engaging in insider trading and the potential loss of reputation and livelihood.