Three investors in the special purpose acquisition company (SPAC) that took Trump Media public have been indicted for insider trading related to the deal, making $22m in illegal trades. The individuals, Michael Shvartsman, Gerald Shvartsman, and Bruce Garelick, were charged with trading in securities of Digital World Acquisition Corporation (DWAC) based on non-public information about the company’s planned business combination with Trump Media & Technology Group (TMTG), the parent company of social media platform Truth Social. The charges were announced by U.S. Attorney Damian Williams in Manhattan and were reported by Yahoo Finance’s Oliver O’Connell and law.com’s Jonathan Stempel and Helen Coster.

According to the indictment, the three investors were invited to invest in DWAC and another SPAC. After signing non-disclosure agreements, they were provided with confidential information, including the planned deal with Trump Media. They were prohibited from using this knowledge in the open market. However, they allegedly began buying DWAC securities and passed tips to others, and then sold them at a “significant profit” after the merger plans were announced.

Garelick, who had been given a seat on the board of directors of DWAC, allegedly provided updates about the status of merger talks and timing of a merger announcement to his co-conspirators, referring to the information as “intelligence”. The defendants then allegedly began buying DWAC securities and passed tips to others, and then sold them at a “significant profit” after the merger plans were announced.

The U.S. Securities and Exchange Commission filed a related civil lawsuit Thursday against the men. It said Garelick had been chief strategy officer at Michael Shvartsman’s Miami-based venture capital firm Rocket One Capital, which placed all its trades in DWAC securities. Gerald Shvartsman is Michael Shvartsman’s brother.

The future of the DWAC-TMTG deal remains in doubt. If the deal closes, TMTG would gain access to over $1 billion in cash from DWAC’s institutional investors, such as hedge funds. According to a services agreement dated Feb. 2, 2021, Trump controls 90% of TMTG.

Each defendant faces five to seven fraud and conspiracy charges that could lead to decades in prison. The case has drawn significant attention, highlighting the potential legal risks associated with insider trading in the context of SPAC deals.

Sources: Yahoo Finance, Yahoo Finance