New York CNN —
Florida venture capitalist Michael Shvartsman and his brother Gerald Shvartsman pleaded guilty on Wednesday to participating in an insider trading scheme linked to the blockbuster deal that brought former President Donald Trump’s social media business public.
Each of the brothers pleaded guilty in New York to one count of securities fraud, which carries a maximum sentence of 20 years in prison, according to federal prosecutors.
The two brothers were arrested in June and charged with illegally trading on nonpublic knowledge of a shell company’s secret plan to buy Trump Media & Technology Group, the parent company of struggling social network Truth Social.
“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 US Attorney for the Southern District of New York, said in a statement.
The indictment accused the brothers and a third individual, Bruce Garelick, of together making more than $22 million in October 2021 by trading on their inside knowledge of the deal.
Shares of the shell company, Digital World Acquisition Corporation, spiked after the blank-check company publicly announced an agreement to merge with Trump Media.
“Insider trading is cheating, plain and simple,” Williams said, “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.”
After years of legal and regulatory delays, the Trump Media merger finally closed last week, paving the way for the Truth Social owner to go public.
Trump Media’s share price has surged, creating a financial windfall for the former president, who is the dominant shareholder. Trump owns 78.8 million shares in Trump Media, a stake valued at about $4.1 billion. Trump Media’s (DJT) stock fell 4% Wednesday.
The frenzy on Wall Street began in October 2021 after Trump revealed plans to merge his new social media business with Digital World Acquisition Co., a special purpose acquisition company, or SPAC.
According to prosecutors, the Shvartsman brothers and Garelick, a then a director on Digital World’s board of, tipped off friends and colleagues about the impending deal, allowing them to buy securities in the SPAC before the Trump Media deal became public.
The defendants passed the secret information about the impending Trump Media deal to friends on. Trip to Las Vegas, to Michael Shvartsman’s neighbors and to Gerald Shvartsman’e employees at a furniture supply store.
There was no allegation in the indictment that Trump himself had any involvement in the alleged insider trading scheme.
This is a developing story. It will be updated.
– CNN’s Kara Scannell contributed to this report