The Securities and Exchange Commission (SEC) has brought insider-trading charges against former Digital World Acquisition Corporation (DWAC) board member Bruce Garelick, Michael Shvartsman and his company Rocket One Capital LLC, and Gerald Shvartsman. The charges stem from their trading actions prior to DWAC's October 2021 announcement regarding its acquisition agreement with Trump Media & Technology Group Corporation (TMTG).
“As a board member, Garelick not only had access to information about DWAC’s upcoming merger announcement, but also a duty to maintain the confidentiality of that information,” Gurbir Grewal, director of the SEC's Division of Enforcement, said in a June 29 press release. “Rather than adhere to his duty as an insider, we allege that Garelick, together with the Shvartsmans, monetized that information to generate over $20 million in illicit profits. This case demonstrates the Commission’s ongoing commitment to exposing insider trading wherever it occurs, including in SPAC mergers, and also highlights the importance of Section 16 filing requirements, as such filings inform the markets and Commission about trades by directors and other corporate insiders.”
The charges relate to trading activities preceding special purpose acquisition company DWAC's October 2021 announcement of an agreement to acquire TMTG. Garelick, after being named him to DWAC's board of directors in September 2021, knew of and participated in voting on material nonpublic actions and updates pertaining to the negotiations between the company and its merger target TMTG; according to the SEC's complaint.
The updates were then allegedly given to Michael Shvartsman, Garelick's supervisor, who also served as the chief strategy officer at Rocket One Capital. Shvartsman then allegedly gave them to his brother Gerald Shvartsman. On the basis of the important nonpublic information they learned about DWAC, each then allegedly purchased DWAC securities on the open market. Michael Shvartsman executed his trades using a Rocket One Capital-branded account.
Shortly after DWAC declared it had signed a merger deal with TMTG, the defendants liquidated their stakes, realizing a combined unlawful profit of more than $22.9 million from the trades; the SEC said. The complaint also claims that Garelick neglected to submit SEC Forms 4 and 5 despite being a DWAC director and having specific reporting responsibilities as a result of his position.
The defendants are accused of breaking the antifraud provisions of the federal securities laws, and Garelick is also accused of breaking the reporting requirements of Section 16 of the Exchange Act. The SEC complaint—which was filed in the U.S. District Court for the Southern District of New York—is asking for civil penalties, officer and director bars against Garelick and Michael Shvartsman, disgorgement of illicit proceeds, prejudgment interest and permanent injunctive relief against each of the defendants.
The SEC's investigation involved the Market Abuse Unit and the New York Regional Office, along with the assistance of other entities. The commission also acknowledged the collaboration of the Southern District of New York U.S. Attorney's Office, the FBI and the Financial Industry Regulatory Authority in the case.
In a related development, the Southern District of New York U.S. Attorney's Office announced on June 29 the filing of criminal charges against Garelick and both Shvartsman brothers.
