The public listing of former President Donald J. Trump’s social media company took another hit on Monday when the cash-rich shell company merging with Mr. Trump’s company revealed in a regulatory filing that a grand jury Federal in New York had recently issued subpoenas to the company and its directors.
The grand jury subpoenas were issued over the past week, according to the filing of Digital World Acquisition, a special purpose acquisition company, or SPAC, which announced a merger with Trump Media & Technology Group in October. . After the merger, Trump Media would assume the listing and trading of Digital World as a public company.
The disclosure by Digital World is the first indication that federal prosecutors in Manhattan have joined in the scrutiny of the merger between Digital World and Trump Media, which has been under investigation by financial regulators for months. The investigation threatens to further delay completion of the merger, which would provide Mr. Trump’s company and his social media platform, Truth Social, with up to $1.3 billion in capital, in addition to a stock Exchange listing.
The Securities and Exchange Commission and the Financial Industry Regulatory Authority opened investigations a few weeks after the announcement of the merger. Digital World’s Monday filing said the grand jury subpoenas sought information similar to what the SEC had previously requested.
The federal grand jury also requested “information regarding Rocket One Capital.” The filing did not reveal the information the grand jury wanted about Rocket One, a venture capital firm in Miami.
In a separate filing, Digital World revealed that Bruce Garelick had resigned as director. Mr. Garelick is listed on Digital World’s records as Chief Strategy Officer at Rocket One.
Mr. Garelick did not immediately respond to request for comment. The record did not give a reason for his resignation.
The SEC investigation focused on whether there had been serious discussions between Digital World management and Trump Media before the SPAC went public in September and why those discussions were not made public. not disclosed in regulatory documents. SPACs, which raise money to go public in hopes of finding a merger candidate, aren’t supposed to have an acquisition goal in mind when raising money from investors.
Regulators also requested information on unusual trading activity in Digital World securities ahead of the merger announcement. There was a surge in trading of Digital World warrants – a security that gives the holder the right to buy shares at a later date and at a specified price – ahead of the merger announcement.
Trump Media released a statement in response to Digital World’s disclosure which said it was “focused on reclaiming the right of the American people to free speech.” The company added, “We encourage — and will cooperate with — oversight that supports the SEC’s important mission to protect retail investors.”
Grand jury subpoenas are usually issued in connection with a possible criminal investigation. A spokesperson for U.S. Attorney in Manhattan Damian Williams declined to comment on the grand jury subpoenas issued to Digital World.
Trump Media’s Truth Social, a Twitter-like social media clone on which Mr. Trump took to posting and, after a slow start, began to gather followers, particularly among conservatives and other supporters of the former president. Mr. Trump was banned from Twitter in January 2021 after repeatedly posting messages claiming the 2020 presidential election was stolen and for failing to promptly speak out against the Jan. 6 attack on the Capitol building.
Elon Musk, the multi-billionaire entrepreneur who made a bid to buy Twitter, said he would allow Mr Trump to return to the much larger social media platform if he goes through with his deal. Mr Trump said he had no intention of returning to Twitter.
But a licensing agreement between Trump Media and the former president allows him to post politically charged messages on Twitter or other social media platforms.
In regulatory filings, Digital World said Truth Social “exists to provide its users with a true platform for free speech and avoid cancellation by Big Tech.”
Mr. Trump is the chairman of Trump Media, a title he is expected to retain if the merger goes through. Devin Nunes, a former Republican congressman from California, is the chief executive of Trump Media, which recently moved its headquarters to Sarasota, Florida.
It does not appear that anyone associated with Trump Media has received a subpoena, according to documents filed by Digital World.
It’s unclear how Rocket One Capital got dragged into the investigation. The venture capital firm is headed by Michael Shvartsman, who did not respond to requests for comment. Shortly after Digital World leaked the grand jury subpoena, Rocket One removed much of its public website.
The parallel investigation by federal prosecutors and securities regulators comes as time is running out for the Sept. 8 deadline to complete the merger. The proposed merger agreement extends the deal deadline to March 8, 2023.
But SPAC shareholders have become increasingly reluctant to extend merger completion deadlines as share prices of many SPACs have cratered in recent months.
Shares of Digital World, which closed last week at $27.82, fell more than 10% in early trading Monday. The stock is down more than 70% from its March high, but remains well above its $10 listing price.
If the merger is not completed, Digital World will have to return to shareholders the nearly $300 million raised in the IPO. The billion dollars that dozens of hedge funds said they would invest in a completed deal would be forfeited.
The poor performance of the SPACs led to the cancellation of a number of planned mergers by agreement between the parties. The proposed agreement between Trump Media and Digital World allows the parties to mutually agree to terminate the agreement.
Earlier this year, Trump Media raised approximately $15 million in funding from a group of anonymous investors.
Kitty Bennett contributed to the research.
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