Months before former President Donald J. Trump’s social media company unveiled an agreement to lift a whole bunch of tens of millions of dollars last fall, word of the deal leaked to an obscure Miami investment firm, whose executives began plotting ways to become profitable off the approaching transaction, in accordance with people aware of the discussions.
The deal — during which a so-called special purpose acquisition company, or SPAC, would merge with Mr. Trump’s fledgling media business — was announced in October. It sent shares of the SPAC soaring.
Employees on the Miami investment firm, Rocket One Capital, had learned of the pending deal over the summer, long before it was announced, in accordance with three people aware of the firm’s internal discussions. Two of the people said that Rocket One officials on the time talked about ways to profit off the soon-to-be-announced transaction with Trump Media & Technology Group by investing within the SPAC, Digital World Acquisition Corporation.
In the times before the Trump Media deal became public, there was a surge in trading in a form of security often called warrants, which entitled investors to purchase shares of Digital World at a preset price in the longer term.
Federal prosecutors and regulators at the moment are investigating the merger between Digital World and Trump Media, including the frenzied trading within the SPAC’s warrants, in accordance with people aware of the investigation and public disclosures. Digital World said in a recent regulatory filing that a federal grand jury in Manhattan had issued subpoenas in search of details about Rocket One, amongst other things.
The precise scope of the federal investigations stays unclear. Authorities haven’t accused anyone of wrongdoing, and representatives of Mr. Garelick and others denied doing anything improper.
A lawyer for Rocket One and its founder, Michael Shvartsman, denied that they’d any advance knowledge of the merger between Digital World and Trump Media. He added that “any assertion otherwise is unfaithful.”
A lawyer for Patrick Orlando, who runs Digital World, declined to comment, as did representatives for the Securities and Exchange Commission and the U.S. attorney’s office in Manhattan.
Representatives for Mr. Trump and Trump Media didn’t reply to requests for comment. The corporate said in a recent news release that neither Mr. Trump nor Devin Nunes, the previous California congressman who’s the corporate’s chief executive, received grand jury subpoenas. (The discharge identified the lads only by their job titles.)
The investigation into unusual trading in Digital World securities is the most recent blow to Mr. Trump’s social media enterprise, which has struggled with technological problems and slow user growth.
Federal authorities are also investigating whether Digital World’s disclosures in regards to the merger talks with Trump Media violated rules governing SPACs. And the Securities and Exchange Commission is considering whether to dam the merger, in accordance with regulatory filings by Digital World. If the deal doesn’t undergo, it will deprive Trump Media of $1.3 billion.
There may be scant public details about Rocket One, which has fewer than 10 employees and has made about 20 early-stage investments over the past decade, in accordance with a review of archived web pages and an evaluation by PitchBook, a knowledge company. Rocket One disabled its website soon after its name appeared in a Digital World regulatory filing.
Two of the people aware of Rocket One’s internal discussions said Mr. Garelick, a former Boston hedge fund manager who’s now Rocket One’s chief strategy officer, mentioned the possible take care of Trump Media to some employees last summer. Around that point, a Rocket One worker was told to conduct a financial evaluation of Digital World, including its warrants, considered one of the people said.
Carl Schoeppl, a lawyer representing Mr. Garelick, declined to comment. “We expressly reserve any and all rights to claim 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,” Mr. Schoeppl said in an email.
Federal prosecutors and securities regulators are attempting to find out why traders snapped up tens of millions of warrants issued by Digital World days before the Oct. 20 announcement of the merger with Trump Media. Shares and warrants of Digital World surged the following day, with the stock rising 350 percent and the warrants soaring nearly 1,300 percent.
Digital World shares closed Monday at $29.51, well off the stock’s $97 high set in March, but well above its $10 I.P.O. price.
By merging with Digital World, Trump Media would gain access to about $300 million that Digital World had raised in its September I.P.O. The businesses secured commitments from other investors to kick in an extra $1 billion if the merger is accomplished.
Trump Media’s sole product is Truth Social, a Twitter-like social media platform. Over the past several weeks, it has develop into the first means for Mr. Trump to speak directly along with his supporters. Amongst other things, he has used Truth Social to blast the congressional committee that’s investigating the Jan. 6, 2021, attack on the U.S. Capitol. With Mr. Trump banned by Twitter, the platform could grow in importance as the previous president considers one other White House bid.
Along with the investigation into the bizarre trading, federal authorities are continuing to research 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. On the time of Digital World’s initial public offering, the corporate said in public filings that it had not yet identified a merger goal. But The Recent York Times previously reported that talks between Mr. Orlando and Trump Media officials were already underway.
If Digital World didn’t disclose ongoing merger talks to investors, that might have violated S.E.C. rules.
The issuance of grand jury subpoenas often is a sign that prosecutors are conducting a criminal investigation.
Amongst those that received subpoenas from the grand jury in late June were Wes Moss and Andy Litinsky (also often called Andy Dean), two former contestants on “The Apprentice,” the truth TV show that Mr. Trump hosted, in accordance with people briefed on the matter.
Shortly after Mr. Trump left office, Mr. Moss and Mr. Litinsky pitched the thought of a Trump-branded social media company to the previous president. The Times previously reported that they were involved in a number of the early talks with Mr. Orlando.
Mr. Moss and Mr. Litinsky, who at one time were senior executives with Trump Media, didn’t reply to requests for comment. Mr. Litinsky not works for Trump Media; Mr. Moss’s job status is unclear.
Securities regulators even have asked for information from Digital World in regards to the role played by the SPAC’s financial adviser, Shanghai-based ARC Group, in accordance with regulatory filings. Federal regulators previously have reprimanded ARC. In 2017, the S.E.C. stopped ARC’s executives from listing shares of three firms, citing “material misstatements” of their securities filings and a scarcity of cooperation from the executives.
Ben Protess contributed reporting. Susan C. Beachy contributed research.