The US Attorney’s Office for the Southern District of New York recently announced that Michael Shvartsman, the owner of venture capital firm Rocket One Capital LLC, and his brother Gerald Shvartsman each pleaded guilty to one count of securities fraud for their alleged involvement in an insider trading scheme that enabled them to generate more than $22 million in illegal profits. The profits were allegedly tied to illegal trades made in anticipation of the merger of Digital World Acquisition Corporation (“DWAC”) with Trump Media & Technology Group in 2021. As part of Michael Shvartsman’s plea agreement, he consented to a money judgment in the amount of $18.2 million dollars. At the time of this publication, a consent order of forfeiture/money judgment for Gerald Shvartsman had not been released by the court.
According to the USAO, Michael Shvartsman and Gerald Shvartsman were invited to invest in two special purpose acquisition companies (“SPACs”), one of which was DWAC. As a condition of receiving confidential information from the SPACs, the defendants signed a non-disclosure agreement (“NDA”) in which they agreed not to disclose or make securities trades based on the material non-public information (“MNPI”) received. After signing the NDA, the SPACs provided the brothers with confidential information about their companies, including their potential plans to purchase Trump Media. The brothers allegedly made initial investments in DWAC, while one of their associates was invited to join DWAC’s board of directors. According to federal prosecutors, the associate continued to provide the brothers with access to MNPI regarding DWAC’s impending merger with Trump Media. In violation of the NDA, they allegedly purchased millions of dollars of DWAC securities in the open market before the impending merger was publicly announced. According to federal prosecutors, they also allegedly shared the MNPI with others who also purchased DWAC securities prior to the announcement. Following the public announcement of the DWAC-Trump Media merger agreement on October 21, 2021, Michael Shvartsman allegedly generated approximately $18.2 million in illegal profits, while Gerald Shvartsman allegedly realized more than $4.6 million.
Michael Shvartsman and Gerald Shvartsman are currently scheduled to be sentenced on September 19, 2024 and July 17, 2024, respectively. On May 9, 2024, a federal jury found co-defendant Bruce Garelick guilty of securities fraud and conspiracy to commit securities fraud for his role in the scheme. Garelick is scheduled to be sentenced on September 12, 2024.
In 2023, the Securities and Exchange Commission filed a parallel action charging Michael and Gerald Shvartsman, Rocket One Capital LLC, and Garelick with insider trading. The SEC’s case was stayed pending the outcome of the government’s criminal case against the defendants.
USAO SDNY Press Release | Superseding Indictment | SEC Press Release (2023) | Scheduling Order – Trial | Order to Stay| Docket – Minute Entries