Two Miami-area brothers plead guilty to insider trading involving Trump’s Truth Social

Two Miami-area brothers pleaded guilty Wednesday to securities fraud stemming from insider trading on millions of dollars’ worth of stock in a local company that merged with former President Donald Trump’s media firm to create a publicly traded social media platform.

Michael Shvartsman, 52, of Sunny Isles Beach and Gerald Shvartsman, 46, of Aventura, who were arrested last year, admitted in Manhattan federal court that they illegally used confidential information to make about $23 million by investing in Miami-based Digital World Acquisition Corp. before the public announcement of its merger with Trump Media & Technology Group.

DWAC went public in September 2021 before announcing plans to merge with Trump Media & Technology Group the following month, leading to the creation of the former president’s social media platform, Truth Social. Trump Media is now trading on the NASDAQ stock exchange.

Facing long prison terms

The brothers, who remain free on bond, face up to 20 years in prison at their sentencing in the Southern District of New York on July 17. Other offenses, including a money laundering charge brought against Michael Shvartsman, will be dropped at their sentencing as part of the brothers’ plea agreement.

“Insider trading is cheating, plain and simple, 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,” U.S. Attorney Damian Williams said in a statement.

A third defendant, Bruce Garelick, 54, of Fort Lauderdale, has pleaded not guilty and awaits trial. Garelick, who worked for the brothers’ investment firm, was given a seat on DWAC’s board of directors and allegedly had access to confidential information that he shared with them.

Trump, who was not implicated in the insider-trading case, regularly uses Truth Social to defend himself and attack his political foes. As the expected Republican nominee for president in the 2024 election, Trump faces a myriad of charges in four separate criminal cases accusing him of paying of hush-money to a porn star, withholding classified documents from the U.S. government, and two cases of interfering in the certification of the 2020 election results awarding the presidency to Democrat Joe Biden.

More than two years after the announced merger between Trump Media and DWAC, Trump Media finally began trading on the NASDAQ stock exchange on March 26.

The stock price opened at $70.90 and climbed as high as $79.38 on the first day of trading. But the company’s paltry 2023 financial performance soon brought the stock back down to Earth. The company announced in a March 29 filing with the SEC that it had only booked $4 million in revenue in 2023 and had operated at a $58 million loss. The stock is currently trading around $50 a share.

Made millions on insider trading

According to an indictment, the Shvartsman brothers and Garelick were accused of making millions from insider trading on DWAC securities by buying shares of the company’s stock on the open market before news of its merger with Trump Media & Technology Group was made public. After the public announcement, the men dumped their securities to pocket their profits, the indictment says.

The financing behind the DWAC-Trump merger was complex.

According to the indictment, the three men were invited to invest in the special purpose acquisition company, Digital World Acquisition Corp., and were provided confidential information that a potential target of DWAC and another Miami-based acquisition company, Benessere Capital Acquisition Corp., was Trump Media & Technology Group. Typically, a special purpose acquisition company, or SPAC, is formed with the intent to merge with a private company before it becomes publicly traded — in this instance, Trump Media, which owns Truth Social.

Garelick was given a seat on DWAC’s board of directors, according to the indictment, and had access to confidential information. The indictment said he then shared that information with the Shvartsman brothers, who operated a venture capital firm, Rocket One Capital LLC. Garelick worked for their firm.

The indictment said that between June and November 2021, the men purchased DWAC securities and shared insider secrets with their friends and employees, who also bought tens of thousands of units of securities ahead of the merger announcement with Trump Media & Technology Group. Ultimately, DWAC — instead of Benessere — formed a merger with Trump Media in the fall of 2021.

In 2022, the Miami Herald and other news media reported on a Securities and Exchange Commission complaint filed by a former Trump Media executive-turned-whistle-blower that detailed internal problems with the merger and the conservative social media platform.

William Wilkerson, a senior vice president of operations at Sarasota-based Trump Media, filed a whistle-blower complaint in August 2022 with the SEC, alleging securities violations involving its merger with DWAC. Wilkerson, represented by lawyers Phil Brewster and Patrick Mincey, was subsequently fired in October and later found work as a barista at a Starbucks, according to the Washington Post.

Allegations surround Russian-American businessman

In January, the Herald reported that a Russian-American businessman based in Miami was suspected of making nearly $23 million from alleged insider trading involving Trump’s media company, according to federal court records in the New York securities fraud case.

The businessman, Anton Postolnikov, is the owner of a Caribbean bank, Paxum, which caters to the porn industry. A trust connected to the bank and Postolnikov reportedly loaned $8 million to Trump’s media company.

Postolnikov, who owns a few residences on exclusive Fisher Island in Miami, is the nephew of a former high-ranking Russian government official who at one time was a staffer for Russian President Vladimir Putin, according to media reports. The insider trading allegations surfaced in court documents filed in December in the New York securities fraud case brought last year against the Shvartsmans and Garelick. Postolnikov has not been charged in that case.

On Wednesday, the Guardian reported that Postolnikov has “been a subject of a years-long joint federal criminal investigation by the FBI and the Department of Homeland Security (DHS) into the Trump Media merger.”

The Guardian further reported that the ES Family Trust was used to make the $8 million in loans to Trump Media in 2021 and 2022, noting that it personally benefited the Russian-American businessman. The trust now has a stake in the parent company of Truth Social that could be worth between $20 million and $40 million, the Guardian reported. The trust reportedly listed a Hollywood address in documents reviewed by the Guardian, but there is no firm by that name registered in Florida.