The public listing of former President Donald J. Trump’s social media company took another blow Monday when the cash-rich shell company that merged with Mr. Trump’s company revealed in a regulatory filing a federal grand jury in New York recently revealed issued subpoenas to the company and its directors.
The grand jury subpoenas were issued last week, according to the filing by Digital World Acquisition, a special-purpose acquisition company, or SPAC, which announced a merger with Trump Media & Technology Group in October. Following the merger, Trump Media would take over Digital World’s listing and trade as a publicly traded company.
The disclosure by Digital World is the first indication that federal prosecutors in Manhattan have joined the scrutiny of the Digital World and Trump Media merger, which has been under investigation by financial regulators for months. The investigation threatens to further delay the completion of the merger, which would give Mr Trump’s company and his social media platform, Truth Social, up to $1.3 billion in capital in addition to a public listing.
The Securities and Exchange Commission and the Financial Industry Regulatory Authority opened an investigation within weeks of the merger announcement. Digital World’s filing on Monday said the grand jury subpoenas sought information similar to what the SEC had already requested.
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 venture capital firm.
In a separate filing, Digital World announced that Bruce Garelick had resigned as director. mr. Garelick is listed in Digital World records as Chief Strategy Officer at Rocket One.
Mr Garelick did not immediately respond to the request for comment. The filing gave no reason for his resignation.
The SEC’s investigation focused on whether there were serious discussions between the Digital World leadership and Trump Media before the SPAC went public in September and why those talks were not disclosed in regulatory filings. SPACs, who are raising money to go public in hopes of finding a merger candidate, should not have an acquisition target in mind when raising money from investors.
Regulators also requested information about unusual trading activity in Digital World securities prior to the merger announcement. There was a large 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 – before the merger announcement.
Trump Media released 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 are encouraging — and will work with — oversight that supports the SEC’s important mission to protect private investors.”
Grand Jury subpoenas are usually issued in connection with a potential criminal investigation. A spokesman for the US 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 that Mr Trump has used to post messages and, after a slow start, has begun rallying, especially among conservatives and other supporters of the former president. Mr. Trump was banned from Twitter in January 2021 after he repeatedly posted messages alleging the stolen 2020 presidential election and for failing to quickly denounce the January 6 attack on the Capitol.
Elon Musk, the multi-billionaire entrepreneur who made an offer to buy Twitter, has said he would allow Trump to return to the much larger social media platform if he could get his deal done. Mr 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 of a political nature on Twitter or other social media platforms.
In legal filings, Digital World has said that 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 once the merger is completed. Devin Nunes, a former Republican congressman from California, is the chief executive of Trump Media, which recently relocated its headquarters to Sarasota, Fla.
According to Digital World’s filings, it appears that no one associated with Trump Media has received subpoenas.
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It is unclear how Rocket One Capital was involved in the investigation. The venture capital firm is headed by Michael Shvartsman, who has not returned requests for comment. Shortly after Digital World released the grand jury subpoena, Rocket One took down much of its public website.
The parallel investigation by federal prosecutors and securities regulators comes as the clock is ticking on the September 8 deadline for the merger to be completed. The proposed merger agreement allows the deadline for the deal to be extended to March 8, 2023.
But shareholders in SPACs have become increasingly reluctant to extend merger-completion deadlines, as share prices of many SPACs have plummeted in recent months.
Shares of Digital World, which closed at $27.82 last week, fell more than 10 percent in early trading on Monday. The stock is down more than 70 percent from its March peak, but remains well above its $10 quoted price.
If the merger is not completed, Digital World will have to pay back the nearly $300 million raised from the IPO to shareholders. The $1 billion that dozens of hedge funds have said to invest in a completed deal would be canceled.
The poor performance of SPACs has resulted in a number of planned mergers being canceled with the agreement 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 about $15 million in funding from a group of unnamed investors.
Kitty Bennett research contributed.
