A federal jury in Manhattan on Thursday convicted a financial executive on securities fraud charges arising from a multimillion-dollar insider trading scheme that involved the merger of former President Donald J. Trump’s social media company with a publicly traded shell company.
Federal prosecutors had charged Bruce Garelick with five counts of securities fraud and conspiracy. Authorities claimed Mr. Garelick leaked confidential information to to his boss and at least one other person that Trump Media & Technology Group, the parent company of Truth Social, was getting close to announcing a merger in October 2021 with Digital World Acquisition Group, the shell company.
The information helped two brothers — Michael Shvartsman and Gerald Shvartsman — make nearly $23 million in illegal trading profits by buying Digital World securities in advance of the announcement, which sent the stock soaring. Mr. Garelick, who worked for Michael Shvartsman at a small Miami-based venture capital firm called Rocket One, made about $50,000 by trading off what authorities said was nonpublic information.
Last month, the Shvartsman brothers decided to forgo a trial and pleaded guilty to securities fraud charges. In their plea agreements, prosecutors have recommended a sentence of roughly four to five years for Michael Shvartsman; and three to four years for his younger brother.
Authorities said Michael Shvartsman used some of the proceeds from the scheme to buy a $14 million luxury yacht that he named Provocateur.
In court filings, prosecutors identified several other people who made profitable trades around the time of the merger announcement but none of them were charged with wrongdoing.
Mr. Garelick, in theory, could be sentenced to at least 25 years in prison.
He stood for the verdict, facing the jury, wearing a dark suit and gray tie. After the verdict was announced, Mr. Garelick sat down with his hand on his head and appeared emotional.
After leaving the courtroom with his family, Mr. Garelick declined to comment. The jury had deliberated for about five hours. He will be sentenced on Sept. 12.
Mr. Garelick, 54, a former hedge fund manager, had been a board member of Digital World. He joined the board after Rocket One agreed to be an early investor in Digital World, which was organized as a special purpose acquisition corporation, or SPAC.
Digital World raised about $300 million from investors in its initial public offering in September 2021. A little over a month later, the SPAC announced a deal to merge with Trump Media. After a long delay, the merger was completed in March and Trump Media became a publicly traded company. Mr. Trump’s nearly 70 percent stake in the firm is worth about $6 billion.
Mr. Garelick ultimately resigned from Digital World’s board after federal prosecutors served subpoenas on the company in summer 2022 seeking information about Rocket One.
Exhibits introduced by prosecutors during the weeklong trial had shown that months before Digital World went public, Mr. Garelick had sometimes referred to the shell company as the “Trump Media Group SPAC” in emails with people who had invested alongside Rocket One.
In a closing argument, Daniel Nessim, a federal prosecutor, described Mr. Garelick as a “sophisticated professional” who “cheated” and used inside information to benefit himself and his boss, Michael Shvartsman.
Mr. Garelick testified on his behalf and said he never tipped anyone about the status of the deal. He said he was helping his boss develop a strategy for trading securities obtained before Digital World’s initial public offering. During the trial, Mr. Garelick’s lawyers suggested another person, who was a friend of the Shvartsman brothers, might have been leaking updates on the deal.
The insider-trading investigation was prompted by a surge in buying of Digital World’s securities on the open market just days before the official announcement of a deal with Trump Media. At the time, Digital World was just one of many often obscure SPACs that had gone public.
Mr. Garelick’s trial coincided with Mr. Trump’s first criminal trial, which is taking place in a New York State courthouse just up the street. Mr. Trump is charged with taking part in a scheme to conceal hush-money payments to Stormy Daniels, an adult film star, in the final days of the 2016 presidential campaign to suppress her story of a sexual liaison that she said she had with Mr. Trump.
Kirsten Noyes contributed research.
Source Agencies
