(Bloomberg) -- A scheme to make millions of dollars on a deal to take Donald Trump’s social media startup public ended badly for a pair of Florida brothers, with both sentenced to prison for insider trading.
Michael Shvartsman, 53, was ordered on Thursday to spend 28 months behind bars by US District Judge Lewis Liman, a day after the judge gave his younger brother Gerald 22 months for his role in the conspiracy. Liman also imposed a $1 million fine.
The brothers were charged by federal prosecutors in Manhattan in June 2023 with making more than $22 million through their trading in a blank check company, Digital World Acquisition Corp., along with another Florida man, Bruce Garelick. The Shvartsmans pleaded guilty to securities fraud in April, while Garelick was convicted in a jury trial in May and is set to be sentenced next month.
The judge said a lengthy term of incarceration was appropriate in the case of Michael Shvartsman given that his crime was “undoubtedly a serious one,” adding that insider trading “undercuts and corrodes the public’s trust in the markets.”
“He did not need to do it, he was already a wealthy man,” Liman said. “He was not desperate, he was not young and unsophisticated.”
‘Deeply Embarrassed’
Shvartsman and his wife, who have three young children, both addressed the court before sentencing, asking the judge to show mercy.
“I’ll never forgive myself for the position I’ve put them in,” Shvartsman said, dabbing his eyes with tissues as his brother looked on from the first row of the gallery. “I’m deeply embarrassed and ashamed for what I’ve done.”
The US had asked Liman to impose a punishment in line with federal sentencing guidelines, which called for Michael Shvartsman to spend 46 to 57 months behind bars, saying his conduct was “flagrant, manipulative and motivated by sheer greed.”
Prosecutors said he was entrusted with confidential information about the merger through a special purpose acquisition company, or a SPAC. They say he arranged for Garelick, an employee of one of his businesses, to serve on the SPAC’s board and made about $18 million trading on the information personally. He is the founder of Rocket One Capital LLC, a Miami-based venture capital firm where Garelick was the chief strategy officer.
“His co-conspirators made millions more,” the government said in a court filing. “And he moved portions of the proceeds of his crimes through a series of corporate payment processing accounts he controlled and used the rest to purchase a luxury yacht layered through shell companies and straw owners.”
SPACs, also known as blank check companies, are shells designed to buy another company with the investment money they attract and to serve as the vehicle for its public listing. They quickly evolved from an obscure corner of the financial world to an investing craze before coming under more government scrutiny.
Michael Shvartsman was more culpable than his brother because he devoted more money to the scheme, ensured one of his employees was on the SPAC’s board and tipped more, a prosecutor told the judge on Thursday. Trump himself wasn’t accused of any wrongdoing in the case.
Defense lawyers urged Liman to impose a punishment below the guidelines, asking for 26 months. They said their client has “paid a steep price” for his conduct, has “lost his reputation and suffered humiliation both personally and professionally,” and has lost “significant amounts of business.”
The brothers, the sons of Ukrainian immigrants, both face deportation after they serve their sentences.
The Shvartsmans and Garelick were early investors in Digital World and had signed nondisclosure deals with the company that gave them access to secret data about its merger targets, which included Trump’s social media company, Trump Media & Technology Group Corp.
Digital World announced an agreement to merge with Trump Media in October 2021, sending the shares soaring and handing the three men millions of dollars in profit from trades they made beforehand, according to prosecutors. The long-stalled merger, completed in March, allowed the media startup, which operates Trump’s Truth Social platform, to begin trading as a public company.
Trump Media hit a low in September, shedding more than $7 billion since a peak in May, but has since rebounded.
The case is US v. Shvartsman, 23-cr-307, US District Court, Southern District of New York (Manhattan).
(Updates with comments by judge, Shvartsman, background on case.)
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