Two Florida brothers pleaded guilty on Wednesday to securities fraud over their roles in a $23m insider-trading scheme when they traded on confidential information in 2021 about the planned merger between Donald Trump’s social media company and the special purpose vehicle that would take it public.
The men – Michael and Gerald Shvartsman – had originally pleaded not guilty when they were charged with multiple counts of securities fraud last year alongside a third co-defendant and were scheduled to go to trial later this month.
But weeks after Michael Shvartsman was charged with an additional count of money laundering in a superseding indictment, he and his brother reached a deal with federal prosecutors to plead guilty to one count of securities fraud and avoid trial in federal district court in New York.
The plea deals required Michael Shvartsman to forfeit $18.2m in illicit profits, any and all funds in an account with Saudi National Bank, a yacht he had bought and re-named Provocateur and three Yamaha jetskis tendered to the yacht. Gerald Shvartsman agreed to forfeit $4.6m in gains.
Prosecutors recommended to the presiding US district judge, Lewis Liman, that he sentence Michael Shvartsman to four to five years in jail, with three to four years for Gerald Shvartsman. But the judge is not bound by the recommendations, and the brothers face prison sentences of up to 20 years.
The third co-defendant in the insider trading scheme, Bruce Garelick, is scheduled to go to trial at the end of April. Prosecutors allege he made less than $50,000 in illicit profits but played a crucial role in passing on the non-public information about the expected Trump Media merger.
At least part of the motivation for Michael and Gerald Shvartsman to take plea deals could be because of the expansive nature of the evidence that appears to have been amassed by prosecutors in the US attorney’s office for the southern district of New York, according to pre-trial discovery filings.
The court filings painted a comprehensive picture of the three men making millions from illegal trades after being told in September 2021 that the blank-check company Digital World Acquisition had finalized plans to take Trump Media public.
By buying up warrants and units of Digital World at its opening low price, the men made substantial profits when they sold their stakes the following month after the share price skyrocketed upon the news of the announcement.
The unusual circumstances of the Trump Media merger led to securities and criminal investigations in 2021, which delayed the merger and almost imperiled the entire public offering because Trump Media started running out of cash as it waited for the green light to make its stock market debut.
To help stave off insolvency in 2022, Trump Media accepted $8m in loans from an entity called ES Family Trust – which the Guardian reported on Wednesday was actually managed by a Russian-American businessman named Anton Postolnikov, who himself came under scrutiny in the criminal investigation.
