A new development is unfolding regarding the highly-publicized insider trading case involving Donald Trump’s social media company and the special purpose acquisition corporation (SPAC) that it merged with.

Two of the three investors charged in the alleged $22 million scheme signaled that they will likely plead guilty as part of a deal with federal prosecutors.

According to court filings on Monday, a hearing has been scheduled for later this week where Michael Shvartsman, a Florida venture capitalist, intends to change his not-guilty plea in the high-profile case. His brother Gerald Shvartsman also appears set to enter a guilty plea based on the scheduled “change of plea” hearing docketed for both men.

While the Shvartsman brothers’ decisions to possibly admit guilt remain unconfirmed until the hearing, such “change of plea” proceedings almost always indicate that a defendant is reversing course to plead guilty.

The expected flip would represent a massive development in the insider trading case, which stemmed from the 2021 merger between Trump Media & Technology Group and Digital World Acquisition Corp. (DWAC), a special purpose acquisition company or SPAC.

Also read: The Biggest Wall Street Insider Trading Scandals

The criminal case, brought by the US Attorney’s Office for the Southern District of New York last June, alleges the three investors improperly traded DWAC stock on confidential information about the SPAC’s planned merger with Trump’s fledgling media company before it was publicly announced.

This case is a classic insider trading example that seems to be rather common with SPACs. The company was not supposed to reveal the merger before the deal went public and it seems like the Shvartsmans gained that confidential information and then used it to trade DWAC stock for their benefit, clearly constituting insider trading.

According to prosecutors, the men used their access to secret details about Digital World’s target companies to unlawfully acquire shares of the SPAC ahead of the Trump Media merger news. When the deal leaked and caused Digital World’s stock to surge in October 2021, the trio quickly cashed out over $22 million in (allegedly) illegal profits.

If convicted at trial on the most serious charges of conspiracy and securities fraud, each defendant faced up to 25 years in prison.

However, the maximum sentence is extremely rare in these kinds of cases. Furthermore, by pleading guilty, the Shvartsmans will likely receive reduced sentences as part of a cooperation agreement that could see them testifying against the remaining defendant, Bruce Garelick, who is a former board member of Digital World.

Garelick Would be Left Alone If Brothers Flip

Should the Shvartsman brothers formally change their pleas to guilty this week as expected, Garelick would be the sole remaining defendant fighting the insider trading charges at an upcoming April 29 trial date in Manhattan federal court.

Garelick’s defense team did not comment on the new filings regarding their co-defendants. However, legal experts say that Garelick could face immense pressure to also pursue a plea deal if the brothers provide cooperating testimony that incriminates him.

The charges against all three men allege that they were given special access to confidential details about Digital World Acquisition Corp.’s (DWAC) prospective merger targets after being invited to invest in the SPAC and signing non-disclosure agreements (NDAs).

Also read: Donald Trump’s Truth Social Is About to Become a $6 Billion Meme Stock – Is It the New GME?

Prosecutors claim that Garelick, while serving on Digital World’s board of directors, tipped off the Shvartsman brothers about the Trump merger talks in 2021, providing confidential information that allowed them to unlawfully profit from their trades.

As outlined in the original indictment, after news of the $875 million merger with Trump Media & Technology Group became public on October 20, 2021, the defendants quickly sold off their Digital World holdings for massive profits in a classic case of insider trading.

Specifically, Garelick is accused of netting around $49,700 in illegal profits, while Gerald Shvartsman allegedly made $4.6 million. His brother Michael reportedly profited to the tune of $18.2 million.

The case generated national headlines because it involved Trump’s new social media venture Truth Social – a controversial right-wing platform that the former President launched after his accounts were suspended on traditional social media networks like Instagram and Twitter – now known as X.

The DWAC Insider Trading Case Origins

two of three investors accussed of insider trading may plea guilty in DWAC case

The insider trading investigation appears to have originated from suspicious trading patterns detected around Digital World Acquisition Corp.’s shares in the weeks leading up to the Trump Media merger announcement in October 2021.

At the time, Digital World was a relatively unknown SPAC, also called a “blank check” company, that had raised around $300 million with the intent of merging with a private company to take it public.

The SPAC was led by a group of relatively obscure entrepreneurs and investment firms with little in the way of a public profile or experience with such high-profile deals. This included figures like CEO Patrick Orlando, as well as Garelick – a venture capitalist.

On October 20, 2021, after market close, Truth Social’s plans to merge with DWAC in a deal valuing the combined company at $875 million were made public, immediately sending Digital World’s stock into the stratosphere.

Shares of Digital World skyrocketed by over 1,700% in just a matter of days, from around $10 per share to an eye-popping peak near $180 as Trump’s supporters and momentum traders piled into the stock on hopes that the former president’s media venture would be a success.

However, the stunning price surge raised red flags with regulators and prosecutors given the otherwise low public profile of the deal, leading them to scrutinize trading patterns ahead of the announcement.

Breakthrough Leads to Warrant Executions in the Spring of 2022

The breakthrough moment in the insider trading case appears to have come in the spring of 2022 when federal investigators obtained search warrants and court orders to gather records of communications and stock trading activity by various individuals connected to Digital World.

According to the indictment, this included access to Garelick’s communications as a director of the SPAC as well as records from the Shvartsman brothers’ Rocket One Capital investment firm in Florida where Garelick worked previously as a Chief Strategy Officer.

Prosecutors said that those records showed that Garelick was tipping off Michael Shvartsman, the CEO of Rocket One Capital, about the Trump Media deal based on confidential information he learned as a Digital World board member.

Garelick had been granted a board seat on the SPAC after his firm pledged to invest in Digital World alongside other sponsors. As part of that arrangement, prosecutors say Garelick agreed to keep any information strictly confidential under a non-disclosure agreement with the blank check firm.

However, the government claims that Garelick violated that NDA by sharing details about the looming Trump Media merger with Michael Shvartsman, who then traded DWAC shares based on those tips while also passing the information to his brother Gerald.

Over a period of months in 2021, the trio steadily accumulated large stakes in Digital World’s stock and warrants in advance of the merger news at around $10 apiece.

Is Trump Involved In This Scheme?

Some onlookers have argued that Donald Trump himself may have been involved in the stunt but no strong evidence of such collusion has been unearthed. In public statements, Trump claimed that he had no knowledge of any improper investor trading and blasted the insider trading investigation as another “witch hunt” of baseless accusations.

Trump’s spokespersons also emphasized that the former president had no paid role or involvement with DWAC. They maintained that Trump Media and Truth Social were not targets of the criminal probe into the SPAC merger, even as key figures like Garelick faced indictment.

Trump certainly didn’t need to have been involved in the insider trading scheme for it to work as it seems like the deal leaked on DWAC’s side, not Trump’s.

Whether Trump will be pulled further into the case in light of any potential cooperating testimony from the Shvartsman brothers remains to be seen.