A federal jury in Manhattan on Thursday convicted a financial executive of securities fraud charges stemming from a multibillion-dollar insider trading scheme that involved the merger of former President Donald J. Trump’s social media company with a publicly traded shell company. in a bag.
Federal prosecutors had charged Bruce Garelick with five counts of securities fraud and conspiracy. Authorities claimed Garelick leaked confidential information to his boss and at least one other person that Trump Media & Technology Group, the parent company of Truth Social, was about to announce 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 purchasing Digital World securities before the announcement, sending the stock soaring. Garelick, who worked for Michael Shvartsman at a small Miami-based venture capital firm called Rocket One, made about $50,000 by trading what authorities said was non-public information.
Last month, the Shvartsman brothers decided to forgo a trial and pleaded guilty to securities fraud charges. In their plea agreements, prosecutors recommended a sentence of approximately four to five years for Michael Shvartsman; and three to four years for his younger brother.
Authorities said Michael Shvartsman used part of the proceeds from the scheme to purchase a $14 million luxury yacht he named the Provocateur.
In court documents, prosecutors identified several other people who made profitable transactions at the time of the merger announcement, but none of them were accused of wrongdoing.
Garelick, in theory, could be sentenced to at least 25 years in prison.
He appeared before the verdict, facing the jury, dressed in a dark suit and a gray tie. After the verdict was announced, Mr. Garelick sat with his hand on his head and seemed emotional.
After leaving the courtroom with his family, Garelick declined to comment. The jury had deliberated for about five hours. He will be sentenced on September 12.
Garelick, 54, a former hedge fund manager, had been a member of Digital World’s board of directors. 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. Just 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. Trump’s nearly 70 percent stake in the company is worth about $6 billion.
Garelick eventually resigned from Digital World’s board of directors after federal prosecutors served subpoenas on the company in the summer of 2022 seeking information about Rocket One.
Evidence presented by prosecutors during the week-long trial had shown that months before Digital World went public, Garelick had sometimes referred to the shell company as the “Trump Media Group SPAC” in emails with people who had inverted alongside Rocket One.
In a closing argument, Daniel Nessim, a federal prosecutor, described Garelick as a “sophisticated professional” who “deceived” and used inside information to benefit himself and his boss, Michael Shvartsman.
Garelick testified on his behalf and said he never informed anyone about the status of the agreement. He said he was helping his boss develop a strategy for trading securities raised before Digital World’s initial public offering. During the trial, Garelick’s lawyers suggested that another person, who was a friend of the Shvartsman brothers, may have been leaking updates about the deal.
The insider trading investigation was prompted by a surge in open market buying of Digital World securities 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.
Garelick’s trial coincided with Trump’s first criminal trial, which is being held in a New York state courthouse just down the street. Trump is accused of participating in a scheme to conceal payments to Stormy Daniels, an adult film star, in the final days of the 2016 presidential campaign to conceal his story of a sexual relationship he said he had with Mr.
Kirsten Noyes contributed to the research.