Investors linked to Trump’s Truth Social IPO plead guilty to insider trading

03 April 2024

Two investors who were involved in the merger that helped make the parent company of former President Donald Trump's social media platform go public are now convicted felons after entering a guilty plea on Wednesday.

CNN reported that brothers Gerald and Michael Shvartsman each pleaded guilty to one count apiece of securities fraud in relation to an insider trading case first brought against them in June of 2023. The South Florida-based investors pocked more than $22 million after tipping off friends and family about the merger that would bring about the initial public offering (IPO) of Trump Media and Technology Group (TMTG).

The IPO came about after a special purpose acquisition group — more commonly known as a SPAC — dubbed "Digital World Acquisition Group" (DWAC) agreed to buy TMTG and take it public in March. The Shvartsman brothers and a third associate, Bruce Garelick knew about the SPAC's plans well ahead of time and invited their associates in 2021 to invest in the company before the news became public. The knowledge likely came from Garelick, who at the time was on the board of the SPAC. Investors then reaped a significant windfall after the merger plans and eventual IPO were announced.

"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," US Attorney for the Southern District of New York Damien Williams said in a public statement.

“Insider trading is cheating, plain and simple,” he continued, adding that the guilty plea "should remind anyone who may be tempted to corrupt the integrity of the stock market that it will earn them a ticket to prison.”

TMTG went public last week, trading for nearly $70 per share on the Nasdaq Composite as $DJT. However, after a filing with financial regulators showed that Truth Social suffered more than $50 million in losses last year and needed the SPAC's funding to remain operational, investors immediately soured on the stock, causing it to plummet in value by roughly $4 billion in its first week of trading. As Trump is the majority shareholder, he lost approximately $1 billion in personal net worth due to the stock's poor performance.

Following the disastrous first week after his IPO, the former president sued his business partners, Andy Litinsky and Wes Moss, in Florida court. Trump accusing them of mishandling the setup of the company's corporate governance structure and botching the merger with DWAC.

Trump's suit came about after Litinsky and Moss filed their own suit against the ex-president in Delaware Chancery Court. In that complaint, the two investors said Trump engaged in "11th hour, pre-merger corporate maneuvering" to "drastically dilute" the value of their 8.6% stake in the company.

The former president, who has 78 million shares in TMTG, allegedly tried to artificially inflate the number of shares to one billion, which would have reduced Litinsky and Moss' stake to less than 1% of TMTG. Their attorney, Christopher J. Clark, told the Washington Post at the time that Trump was "baselessly trying to renege" on a prior agreement.

While Trump stood to gain more than $3.5 billion from the IPO, he is prohibited from selling any of his shares until after the company has been public for at least six months. If the stock continues to decline in value, his shares may be close to worthless by the time he's able to sell.

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