SEC Charges Former DWAC Board Member and Others for Insider Trading in DWAC Securities

The Securities and Exchange Commission (SEC) has taken legal action by filing insider trading charges against Bruce Garelick, a former board member of Digital World Acquisition Corporation (DWAC), a special purpose acquisition company (SPAC). The charges also extend to Michael Shvartsman, his firm Rocket One Capital LLC, and Gerald Shvartsman. The allegations pertain to trading activities prior to DWAC’s announcement in October 2021 that it would acquire Trump Media & Technology Group Corp. (TMTG).

According to the SEC’s complaint, Garelick, after being appointed to DWAC’s board of directors in September 2021, obtained confidential nonpublic information about the negotiations between DWAC and TMTG. He allegedly voted on matters related to the merger and shared this information with his superior, Michael Shvartsman, who, in turn, shared it with his brother, Gerald Shvartsman. Based on this material nonpublic information, all three defendants reportedly purchased DWAC securities on the open market. Michael Shvartsman executed his trades through an account held by Rocket One Capital. Following the announcement of the merger agreement between DWAC and TMTG, the defendants sold their positions, collectively making illicit profits exceeding $22.9 million. The complaint further alleges that Garelick, as a DWAC director, failed to fulfill his reporting obligations by not filing SEC Forms 4 and 5 regarding his transactions in DWAC securities.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, stated, “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.”

The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, accuses the defendants of violating the antifraud provisions of federal securities laws. Garelick is also charged with violating the reporting obligations of Section 16 of the Exchange Act. The SEC seeks permanent injunctive relief, disgorgement of illicit gains, prejudgment interest, and civil penalties for all defendants, as well as officer and director bars against Garelick and Michael Shvartsman.

The U.S. Attorney’s Office for the Southern District of New York has also announced criminal charges against Garelick and the Shvartsmans in a parallel action.

The SEC’s investigation was conducted by Andrew McFall, David Bennett, Darren Boerner, Patrick McCluskey of the Market Abuse Unit, and Lindsay S. Moilanen of the New York Regional Office. The case was supervised by Joseph Sansone of the Market Abuse Unit and Thomas P. Smith, Jr. of the New York Regional Office. The SEC’s litigation is led by John Timmer, James Connor, and Mr. McFall, under the supervision of Olivia Choe. The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Southern District of New York, the FBI, and the Financial Industry Regulatory Authority.