Months before former President Donald J. Trump’s social media company unveiled a deal to raise hundreds of millions of dollars last fall, news of the deal leaked to an obscure Miami investment firm, whose executives began planning ways of making money from the impending transaction, according to people familiar with the discussions.
The deal, in which the so-called special purpose acquisition company, or SPAC, would merge with Trump’s fledgling media business, was announced in October. He caused SPAC’s stock to skyrocket.
Employees at Miami investment firm Rocket One Capital learned of the pending deal over the summer, well before it was announced, according to three people familiar with internal discussions at the firm. Two of the people said Rocket One officials at the time discussed ways to profit from the soon-to-be-announced transaction with Trump Media & Technology Group by investing in SPAC, Digital World Acquisition Corporation.
In the days before the Trump Media deal was made public, there was a surge in trading in a type of security known as warrants, which allowed investors to buy shares of Digital World at a preset price in the future.
Federal prosecutors and regulators are now investigating the merger between Digital World and Trump Media, including the frantic negotiation of SPAC arrest warrants, according to people familiar with the investigation and public disclosures. Digital World said in a recent regulatory filing that a federal grand jury in Manhattan had issued subpoenas seeking information on 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 wrong.
An attorney for Rocket One and its founder, Michael Shvartsman, denied any prior knowledge of the merger between Digital World and Trump Media. He added that “any claim to the contrary is false.”
A lawyer for Patrick Orlando, who runs Digital World, declined to comment, as did representatives from the Securities and Exchange Commission and the US attorney’s office in Manhattan.
Representatives for Trump and Trump Media did not respond to requests for comment. The company said in a recent news release that neither Trump nor Devin Nunes, the former California congressman who is the company’s CEO, received grand jury subpoenas. (The release identified the men only by their job titles.)
The investigation into unusual trading in Digital World securities is the latest blow to Trump’s social media company, which has struggled with technology problems and slow user growth.
Federal authorities are also investigating whether Digital World’s revelations about merger talks with Trump Media violated the rules governing SPACs. And the Securities and Exchange Commission is considering whether to block the merger, according to regulatory filings from Digital World. If the deal doesn’t go through, it would deprive Trump Media of $1.3 billion.
There is little public information about Rocket One, which has fewer than 10 employees and has made about 20 startup investments over the past decade, according to a review of archived websites and analysis by PitchBook, a data company. Rocket One disabled its website shortly after its name appeared in a Digital World regulatory filing.
Two of the people familiar with Rocket One’s internal discussions said Mr. Garelick, a former Boston hedge fund manager who is now Rocket One’s chief strategy officer, mentioned the potential deal with Trump Media to some employees on Monday. last summer. Around that time, a Rocket One employee was told to conduct a financial analysis of Digital World, including its guarantees, one of the people said.
Carl Schoeppl, an attorney representing Garelick, declined to comment. “We expressly reserve any and all rights to assert libel claims for any article that alleges, suggests and/or otherwise implies that Bruce J. Garelick engaged in insider trading or any violation of law,” it said. Mr. Schoeppl in an email.
Federal prosecutors and securities regulators are trying to determine why traders seized millions of orders issued by Digital World days before the Oct. 20 announcement of the merger with Trump Media. Digital World shares and warrants were up the next day, with shares up 350% and warrants up almost 1,300%.
By merging with Digital World, Trump Media would gain access to around $300 million that Digital World had raised in its September IPO. The companies secured commitments from other investors to put up an additional $1 billion if the merger is completed.
Trump Media’s only product is Truth Social, a social media platform similar to Twitter. In recent weeks, it has become the main means for Trump to communicate directly with his supporters. Among other things, he has used Truth Social to criticize the congressional committee investigating the January 6, 2021 attack on the US Capitol. With Trump banned from Twitter, the platform could grow in importance as the former president ponders another run for the White House.
In addition to the unusual trading investigation, federal authorities continue to investigate whether the leaders of Digital World and Trump Media began negotiating a possible merger before Digital World sold shares through an initial public offering in September. At the time of Digital World’s initial public offering, 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 did not disclose the ongoing merger talks to investors, that would have violated SEC rules.
The issuance of grand jury subpoenas is usually an indication that prosecutors are conducting a criminal investigation.
Among those served with grand jury subpoenas in late June were Wes Moss and Andy Litinsky (also known as Andy Dean), two former contestants on “The Apprentice,” the reality show hosted by Trump, according to people briefed on the matter.
Shortly after Trump left office, Moss and Litinsky approached the former president with the idea of a Trump-branded social media company. The Times previously reported that they were involved in some of the early conversations with Mr. Orlando.
Moss and Litinksy did not respond to requests for comment. Mr. Litinsky no longer works for Trump Media; The status of Mr. Moss’s job is unclear.
Securities regulators also requested information from Digital World about the role played by SPAC’s financial adviser, Shanghai-based ARC Group, according to regulatory filings. Federal regulators have previously rebuked ARC. In 2017, the SEC blocked ARC executives from listing shares of three companies, citing “material misstatements” in its securities filings and a lack of cooperation from the executives.
ben protest contributed report. susan c beach contributed research.