Federal authorities on Thursday charged three men with involvement in a plan to illicitly collect $22 million in profits through trading ahead of the proposed merger of former President Donald J. Trump’s social media company with a financially strong public letterbox company should be achieved in autumn 2021.
The arrests came after a lengthy investigation by federal prosecutors in Manhattan into trading in securities of the Digital World Acquisition Group, a so-called special purpose acquisition company. The investigation focused on a small Miami-based venture capital firm, Rocket One Capital, led by Michael Shvartsman.
Federal prosecutors in Manhattan said they have indicted Mr Shvartsman and his brother Gerald, who owns an outdoor furniture store in Miami, accusing them of unfair dealing. Also charged was Bruce Garelick, a former hedge fund manager who worked at Rocket One. He was also a board member of Digital World before stepping down last summer.
None of those arrested are said to have any connection with Mr Trump or anyone linked to Trump Media & Technology Company, the parent company of his right-wing social media platform Truth Social, said a person with knowledge of the matter who spoke out Word reported on condition of anonymity as he was not authorized to speak publicly. Trump Media to merge with Digital World.
Grant Smith and Robert Buschel, attorneys for the brothers, declined to comment. Carl Schoeppl, an attorney for Mr Garelick, did not respond to a request for comment.
A Digital World executive declined to comment. A spokeswoman for Trump Media also did not respond to a request for comment.
Authorities have not accused either company of wrongdoing.
The three arrested men are scheduled to appear before a federal judge in Miami on Thursday. An indictment in a federal court in Manhattan is not yet scheduled.
Rocket One and several people associated with Mr. Shvartsman had invested in Digital World about two months prior to the SPAC’s IPO. Shortly after the group invested, some Rocket One employees began routinely referring to Digital World as “Trump SPAC,” the New York Times previously reported.
Federal prosecutors in Manhattan said the three men violated non-disclosure agreements not to discuss the upcoming deal with anyone or to purchase additional securities based on non-public information about the deal. Authorities said the men also briefed others on the upcoming deal between Digital World and Trump Media during a trip to Las Vegas and on other occasions.
In the indictment, prosecutors said Mr. Garelick was added as a board member of Digital World in July 2021 because Mr. Shvartsman made a large investment in the SPAC prior to the IPO.
The investigation into improper trading in Digital World’s securities is just one of several investigations that have delayed the merger with Trump Media. The clock comes down to completing the deal before September 8th, the date by which Digital World would be required under its company’s articles of association to liquidate the $300 million the company raised in its IPO and donate to the return to current shareholders
The Securities and Exchange Commission has investigated whether preliminary merger talks between Digital World and Trump Media, which took place prior to the SPAC’s September 2021 IPO, violated federal securities laws. The SEC, which also investigated the abusive trading of Digital World’s securities, has not yet approved the proposed merger.
SPACs, which are formed to raise money from investors and then find a company to buy, are not allowed to engage in serious merger negotiations before going public. Federal authorities are trying to determine whether Digital World’s discussions with Trump Media were substantive enough to warrant disclosure before SPAC sold stock to the public.
The SEC filed a related lawsuit against the brothers and Mr. Garelick on Thursday. The SEC also named Rocket One as a defendant.
In its lawsuit filed in Manhattan federal court, the SEC included a text message that Mr. Garelick sent to his daughter shortly after his appointment as a member of Digital World’s board of directors. In the text, he said, “There’s a chance you’ll enjoy it… Your father could be named to the board of directors of Trump Media Group.”
Trump Media executives and some Digital World shareholders have accused the SEC of using the investigations as an excuse to stall time by not approving the merger. The deal is seen as crucial in providing cash for Trump Media and Truth Social, which has become the former president’s main megaphone over the past year.
Federal prosecutors and the SEC filed several other insider trading cases Thursday, including charges against a former Pfizer employee and his friend for trading in the run-up to news of an encouraging test result for the pharmaceutical company’s Covid-19 drug Paxlovid in November 2021.
“Insider trading is not quick money. It’s not easy money. It’s not a sure thing. It’s fraud,” Damian Williams, the U.S. Attorney for the Southern District of New York, said in a statement announcing the filing of lawsuits.