Trump Media Deal Leaked Months Ahead
Federal authorities are investigating a surge in trading activity before announcing a deal worth $300 million with the media company owned by the former president.
Several months before former President Donald J. Trump's social media company announced an agreement to raise hundreds of millions of dollars last fall, word of the deal leaked to an obscure Miami investment firm. According to people familiar with the discussions, the executives of the Miami investment firm immediately began plotting ways to make money off the imminent transaction.
It was announced in October that Mr. Trump's nascent media business would be merged with a so-called special purpose acquisition company, also known as a SPAC. It caused the stock of the SPAC to surge to new heights.
According to three people familiar with the firm's internal discussions, the Miami investment firm Rocket One Capital employees were aware of the impending deal during the summer long before it was announced publicly. This information was provided by three people who were familiar with the firm's internal conversations. Two people said that Rocket One officials at the time discussed ways to profit off the soon-to-be-announced transaction with Trump Media & Technology Group by investing in the SPAC, which stands for the Strategic Publicly-Traded Acquisition Corporation. Specifically, the people said the discussion centered on investing in the digital world acquisition corporation.
Until recent weeks, Bruce Garelick, a top executive at Rocket One, served on the board of directors of Digital World. However, he has since resigned from that position.
During the days leading up to the announcement of the Trump Media deal, there was a significant increase in the trading volume of a particular type of security known as warrants. These warrants gave investors the right to purchase shares of Digital World at a predetermined price at some point in the future.
According to people familiar with the investigation and public disclosures, federal prosecutors and regulators are currently investigating the merger between Digital World and Trump Media, including the frenzied trading in the SPAC's warrants. This is according to individuals who are familiar with the investigation. In a recent filing with the regulatory authorities, Digital World stated that it had learned that a federal grand jury in Manhattan had issued subpoenas seeking information about, among other things, Rocket One.
It is currently unknown how far-reaching exactly the federal investigations are. No one has been accused of wrongdoing by the authorities, and representatives of Mr. Garelick and others have denied doing anything improper.
A lawyer representing Rocket One and its founder, Michael Shvartsman, denied they had any prior knowledge of the proposed merger between Digital World and Trump Media. In addition to this, he stated that "any assertion to the contrary is false."
Representatives from the Securities and Exchange Commission and the United States Attorney's Office in Manhattan both declined to comment, as did the attorney who represents Patrick Orlando, the proprietor of Digital World.
Requests for comment from reporters were ignored by representatives of Mr. Trump and Trump Media. A recent news release from the company stated that neither Mr. Trump nor Devin Nunes, the former congressman from California who now serves as the company's chief executive, were issued subpoenas to testify in front of a grand jury. (The only way the men could be identified was by their job titles in the release.)
The investigation into unusual trading in Digital World securities is the most recent setback for Mr. Trump's foray into the world of social media, which technical issues and sluggish growth have plagued in terms of the user base.
According to regulatory filings by Digital World, the Securities and Exchange Commission is currently deliberating whether or not to prevent the merger. There is also an investigation being conducted by federal authorities to determine whether or not the disclosures made by Digital World regarding the merger talks with Trump Media violated the rules that govern SPACs. If the transaction is not finalized, Trump Media will lose a total of $1.3 billion.
According to a review of archived web pages and an analysis by PitchBook, a data company, there is very little information available to the public about Rocket One, which has fewer than ten employees and has made approximately 20 early-stage investments over the course of the past decade. Soon after its name was revealed in a regulatory filing pertaining to Digital World, Rocket One took down its website.
According to two of the people who are familiar with the internal discussions taking place at Rocket One, Mr. Garelick, a former Boston hedge fund manager who is now Rocket One's chief strategy officer, brought up the possibility of a deal with Trump Media to some employees during the summer of last year. One of the people stated that around that time, an employee of Rocket One was instructed to perform a financial analysis of Digital World, including the company's warrants.
The attorney representing Mr. Garelick, Carl Schoeppl, declined to comment on the matter. In an email, Mr. Schoeppl stated, "We expressly reserve any and all rights to assert claims for defamation for any article that states, suggests, and/or otherwise implies that Bruce J. Garelick committed insider trading or any violation of the law." "We expressly reserve any and all rights to assert claims for defamation for an article that states, suggests, and/or otherwise implies that Bruce J. Garelick committed insider trading or
Prosecutors and regulators of the securities industry at the federal level are investigating the circumstances surrounding the purchase of millions of warrants issued by Digital World by investors in the days leading up to the announcement of the merger with Trump Media on October 20. The following day saw a sharp increase in both the price of Digital World's shares and warrants, with the stock price going up by 350 percent and warrants shooting up by nearly 1,300 percent, respectively.
The price at which shares of Digital World were traded at the market's close on Monday was $29.51, which is significantly higher than the initial public offering price of $10 per share.
Trump Media could gain access to approximately $300 million that Digital World had raised in its initial public offering in September if it merged with Digital World. The companies have received assurances from additional investors that they will contribute an additional one billion dollars if the merger goes through.
Truth Social, a social media platform very similar to Twitter, is the only product that Trump Media offers. Over the last few weeks, it has emerged as Mr. Trump's primary channel for maintaining direct communication with his supporters. He has, among other things, been using Truth Social to criticize the congressional committee that is investigating the attack on the United States Capitol that occurred on January 6, 2021. As Mr. Trump is now barred from using Twitter, the social media platform may become more significant as the former president mulls a run for the White House again.
In addition to the investigation into the unusual trading, federal authorities are continuing to investigate whether the leaders of Digital World and Trump Media started negotiating a potential merger before Digital World sold shares through an initial public offering in September. This investigation is taking place concurrently with the investigation into the unusual trading. When Digital World was going through the process of its initial public offering, the company stated in public filings that it did not yet have a merger target in mind. However, a previous article from The New York Times stated that discussions between Mr. Orlando and officials from Trump Media were already taking place. If Digital World had not informed investors about ongoing merger discussions, the company would have violated the rules set forth by the SEC.
In most cases, the issuing of grand jury subpoenas indicates that prosecutors are investigating a possible criminal offense.
According to people who have been briefed on the matter, two former contestants on "The Apprentice," the reality TV show that Mr. Trump hosted, Wes Moss and Andy Litinsky (also known as Andy Dean), were among those who received subpoenas from the grand jury in late June.
Mr. Trump was approached by Messrs. Moss and Litinsky shortly after he had left his position as president to discuss the possibility of establishing a social media company under the Trump brand. They were reportedly involved in some of the early talks with Mr. Orlando, as was stated in a previous report by The Times.
Requests for comments regarding this matter were not responded to by Messrs. Moss and Litinsky, who both formerly held senior executive positions at Trump Media. Mr. Litinsky is no longer employed by Trump Media, while Mr. Moss's employment situation is currently unknown.
According to the filings made with the regulatory agencies, securities regulators have also requested information from Digital World about the role played by ARC Group, which has its headquarters in Shanghai and advised the SPAC on financial matters. The Securities and Exchange Commission barred the executives of ARC from listing the shares of three companies in 2017, citing "material misstatements" in the executives' securities filings and a lack of cooperation from the executives themselves. The federal regulators previously issued ARC a reprimand.
Trump Media Probe Seeks Information on Obscure Private Equity Firm