Trump’s ‘Truth Social Deal’ under grand jury scrutiny

Trump's 'Truth Social Deal' under grand jury scrutiny
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The listing of former President Donald J. Trump’s social media company took a fresh hit Monday when the well-funded shell company with Mr. Trump’s company disclosed in an application for approval that a federal grand jury in New York recently issued subpoenas against the company and its directors.

The grand jury subpoenas were issued within the past week, according to the filing by Digital World Acquisition, an acquisition special purpose entity, or SPAC, which announced a merger with Trump Media & Technology Group in October. After the merger, Trump Media would take over Digital World’s listing and trading as a public company.

Digital World’s disclosure is the first indication that federal prosecutors in Manhattan have joined the investigation into the merger between Digital World and Trump Media, which has been under investigation by financial regulators for months. The investigation threatens to further delay the completion of the merger, leaving Mr. Trump’s company and his social media platform Truth Social with up to $1.3 billion in capital alongside a public listing.

The Securities and Exchange Commission and the Financial Industry Regulatory Authority opened investigations within weeks of the announcement of the merger. Digital World’s filing on Monday said the grand jury subpoenas requested similar information to that already requested by the SEC.

The federal grand jury also sought “information on Rocket One Capital.” The filing did not disclose what information the grand jury wanted about Rocket One, a Miami-based venture capital firm.

in one separate shelf, Digital World announced that Bruce Garelick had resigned as director. Mister. Garelick is listed in Digital World as Chief Strategy Officer at Rocket One.

Mister. Garelick did not immediately respond to a request for comment. The file did not give a reason for his resignation.

That SEC investigation has focused on whether there were serious discussions between Digital World leadership and Trump Media before the SPAC went public in September, and why these talks were not disclosed in applications for approval. SPACs raising money to go public in hopes of finding a merger candidate shouldn’t have a takeover target in mind when raising money from investors.

Regulators also requested information about unusual trading activity in Digital World’s securities prior to announcing the merger. there was a big increase in trade of Digital World Warrants – a security giving the holder the right to purchase shares at a future date and at a specified price – prior to the merger announcement.

Trump Media issued a statement in response to Digital World’s disclosure, saying it was “focused on reclaiming the American people’s right to free speech.” The company added, “We encourage – and will work with – a regulator that supports the SEC’s important mission of protecting retail investors.”

Grand jury subpoenas are typically issued in connection with a possible criminal investigation. A spokesman for the US Attorney in Manhattan, Damian Williams, declined to comment on the grand jury’s subpoenas to Digital World.

Trump Media’s Truth Social, a Twitter-like social media clone that Mr. Trump has made it its business to publish news on and after a slow start, has begun to gather supporters, particularly among conservatives and other supporters of the former president. Mister. Trump was banned from twitter in January 2021, after repeatedly posting messages claiming the 2020 presidential election was stolen and because of the Jan. 6 attack on the Capitol.

Elon Musk, the billionaire entrepreneur who made an offer to buy Twitter, has said he would Mr. Trump will return to the much larger social media platform if he finalizes his deal. Mister. Trump has said he has no intention of returning to Twitter.

But a licensing deal between Trump Media and the former president allows him to post messages from a political in nature on Twitter or other social media platforms.

In regulatory filings, Digital World has stated that Truth Social “exists to provide its users with a true platform for free speech and to avoid being terminated by Big Tech.”

Mister. Trump is the chairman of Trump Media, a title he is expected to retain once the merger is complete. Devin Nunes, a former Republican congressman from California, is the CEO of Trump Media, which recently relocated its corporate offices to Sarasota, Florida.

According to Digital World’s filings, no one associated with Trump Media appears to have received subpoenas.

It’s unclear how Rocket One Capital was implicated in the investigation. The venture capital firm is run by Michael Shvartsman, who did not respond to requests for comment. Shortly after Digital World announced the grand jury subpoena, Rocket One accepted much of it public website.

The parallel investigation by federal prosecutors and securities regulators comes as the PM’s 8/9 deadline for the merger to be completed. The proposed merger agreement provides for an extension of the transaction deadline to March 8, 2023.

But shareholders SPACs have become increasingly reticent extend the deadlines for completing mergers as many SPACs’ share prices have plummeted in recent months.

Digital World shares, which closed at $27.82 last week, fell more than 10 percent in early trade on Monday. The stock is down more than 70 percent from its March peak, but remains well above its $10 listing price.

If the merger doesn’t go through, Digital World will have to return nearly $300 million from the IPO to shareholders. The $1 billion that dozens of hedge funds say they would invest in a completed deal would be canceled.

The poor performance of SPACs has resulted in a number of proposed mergers being canceled by mutual consent of the parties. The proposed deal between Trump Media and Digital World allows the parties to mutually agree to end the deal.

Earlier this year, Trump Media raised approximately $15 million in funding from a group of unnamed investors.

Kitty Bennett contributed research.

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