Months before former President Donald J. Trump’s social media company unveiled a deal to raise hundreds of millions of dollars last fall, word of the deal leaked to an obscure Miami investment firm, whose executives began plotting ways to monetize the deal. pending transaction. for those familiar with the discussions.
The deal — which would see a so-called special-purpose acquisition company, or SPAC, merge with Mr Trump’s fledgling media company — was announced in October. It sent the stock of the SPAC up.
According to three people familiar with the company’s internal discussions, employees of Miami investment firm Rocket One Capital had heard of the pending deal over the summer long before it was announced. Two of the people said Rocket One officials at the time were talking about ways to capitalize on the soon-to-be-announced deal with Trump Media & Technology Group by investing in the SPAC, Digital World Acquisition Corporation.
In the days before the Trump Media deal went public, there was: an increase in trade in a type of security known as warrants, which gave investors the right to buy shares of Digital World in the future at a predetermined price.
Federal prosecutors and regulators are now investigating the Digital World and Trump Media merger, including the insane trading of the SPAC’s warrants, according to people familiar with the investigation and the public disclosures. Digital World said in a recent registration application that a federal grand jury in Manhattan had issued subpoenas seeking information about Rocket One, among other things.
The exact scope of the federal investigations remains unclear. Authorities have not charged anyone with wrongdoing, and representatives for Mr Garelick and others have denied doing anything inappropriate.
An attorney for Rocket One and its founder, Michael Shvartsman, denied having any prior knowledge of the Digital World and Trump Media merger. He added that “any claim otherwise is not true.”
A lawyer for Patrick Orlando, who runs Digital World, declined to comment, as did representatives of the Securities and Exchange Commission and the US law firm in Manhattan.
Representatives from Mr. Trump and Trump Media did not respond to requests for comment. The company said in a recent press release that neither Mr Trump nor Devin Nunes, the former California congressman who is the company’s chief executive, has received grand jury subpoenas. (The release identified the men by their job titles only.)
The investigation into unusual trading in Digital World securities is the latest blow to Mr Trump’s social media company, which struggles with technology problems and slow user growth.
Federal authorities are also investigating whether Digital World Revelations about the merger talks with Trump Media have violated the rules for SPACs. And the Securities and Exchange Commission is considering blocking the merger, according to Digital World’s registration filings. If the deal falls through, Trump would rob Media of $1.3 billion.
According to a review of archived web pages and an analysis by PitchBook, a data company, there is little public information about Rocket One, which has fewer than 10 employees and has made about 20 early-stage investments over the past decade. Rocket One shut down its website shortly after the name appeared in a Digital World registration request.
Two of those familiar with Rocket One’s internal discussions said Mr. Garelick, a former hedge fund manager in Boston who is now Rocket One’s chief strategy officer, mentioned the potential deal with Trump Media to some employees last summer. Around that time, a Rocket One employee was commissioned to conduct a financial analysis of Digital World, including the warrants, one of the people said.
Carl Schoeppl, a lawyer representing Mr Garelick, declined to comment. “We expressly reserve all rights to make defamation claims for any article that states, suggests and/or otherwise implies that Bruce J. Garelick has committed insider trading or any violation of the law,” said Mr. Schoeppl in an e-mail.
Federal prosecutors and securities regulators are trying to figure out why traders picked up millions of warrants issued by Digital World days before the October 20 merger announcement with Trump Media. Digital World stocks and warrants rose the next day, with a 350 percent increase and warrants up nearly 1,300 percent.
By merging with Digital World, Trump Media would gain access to approximately $300 million that Digital World raised in its September IPO.
Trump Media’s sole product is Truth Social, a Twitter-like social media platform. In recent weeks, it has become Mr Trump’s primary means of communicating directly with his supporters. Among other things, he has used Truth Social to destroy the congressional committee investigating the January 6, 2021 attack on the United States Capitol. With Mr Trump banned from Twitter, the platform could grow in importance as the former president considers another White House bid.
In addition to investigating the unusual trade, federal authorities are continuing to: investigate if the leaders of Digital World and Trump Media began negotiating a potential merger before Digital World sold shares through an IPO in September. At the time of Digital World’s IPO, the company said in public filings that it had not yet identified a merger target. But The New York Times previously reported that talks between Mr. Orlando and Trump Media officials were already underway.
If Digital World had not disclosed the pending merger talks to investors, it would violate SEC rules.
Grand jury subpoenas are usually an indication that prosecutors are conducting a criminal investigation.
Among those who received a grand jury subpoena in late June were Wes Moss and Andy Litinsky (aka Andy Dean), two former contestants on “The Apprentice,” the reality TV show Mr. Trump hosted, according to People. who were informed about the matter.
Shortly after Mr. Trump had left office, Mr. Moss and Mr. Litinsky presented the idea of a social media company with the Trump brand to the former president. The times previously reported that they were involved in some of the early conversations with Mr. Orlando.
Mr Moss and Mr Litinksy did not respond to requests for comment. Mr. Litinsky no longer works for Trump Media; Mr Moss’ job status is unclear.
Securities regulators have also requested information from Digital World about the role played by the SPAC’s financial advisor, the Shanghai-based ARC Group, according to regulatory filings. Federal regulators have previously reprimanded ARC. In 2017, the SEC stopped ARC’s executives from listing shares of three companies, citing “material misstatements” in their securities filings and a lack of cooperation of the executives.
Ben Protess reporting contributed. Susan C. Beachy research contributed.