Nearly 18 months ago, an obscure investment banker unveiled a blockbuster deal: His so-called blank-check company would bankroll a social media outfit that former President Donald J. Trump planned to start with hundreds of millions of dollars.
Today, the social media platform Truth Social has millions of users, including the former president. But the company that was supposed to bankroll it has been swarmed by federal investigators. In late March, the deal’s architect, Patrick Orlando, was ousted as chief executive of Digital World Acquisition Corp.
Officials at Digital World hoped that Mr. Orlando’s departure would pacify federal authorities and lead to the approval of the merger with Truth Social’s parent company, Trump Media & Technology Group, according to three people briefed on the matter.
That deal has been waylaid by two intensifying federal investigations. One is focused on whether preliminary merger discussions between Digital World and Trump Media violated federal securities laws. The other investigation is looking at whether a group of early investors in Digital World — who were brought into the deal by Mr. Orlando — engaged in improper trading.
If the merger is not completed in the next six months, Digital World — established as a special purpose acquisition corporation — will have to return the $300 million it raised from investors in 2021 through an initial public offering. But it is not clear that the investigations by the Securities and Exchange Commission and federal prosecutors in Manhattan will be completed in time to permit the S.E.C. to approve the merger as required.
Executives of Trump Media and some shareholders of Digital World have accused the S.E.C. of trying to run out the clock. In February, officials with Trump Media sent a letter to several Republican congressmen asking them to open an investigation into the S.E.C.’s refusal to approve the deal, accusing regulators of being biased against the former president.
Hours after a Manhattan grand jury indicted Mr. Trump on Thursday, Eric Swider, a Digital World board member who replaced Mr. Orlando as the interim chief executive, wrote on Truth Social, “Never been more of a reason to fight on and never give up.”
On Thursday night, Devin Nunes, the former U.S. representative who is now chief executive of Trump Media, lashed out against the holdup. “They even go after people we are trying to do business with so that we don’t have access to the public markets,” Mr. Nunes said on Fox News.
Federal authorities began looking into the proposed merger soon after The New York Times reported that representatives of Trump Media had engaged in potential merger talks with not only Digital World, but also another SPAC led by Mr. Orlando.
SPACs are not allowed to hold serious merger discussions before they go public, and if they do, it can violate federal securities laws. Federal authorities are trying to determine if Digital World’s talks with Trump Media were substantive enough that they should have been disclosed before the SPAC sold shares to the public in September 2021.
Lawyers for Digital World told the S.E.C. that any talks with representatives of Trump Media before the public offering were not significant.
“If it was clearly prearranged, that was an egregious violation,” said Michael Klausner, a professor of corporate law at Stanford Law School, who emerged as one of the leading critics of SPACs before the market for them collapsed last year. “The S.E.C. has the discretion to stop a merger where the disclosures violate security laws.”
Representatives for the S.E.C. and the U.S. attorney’s office for the Southern District of New York declined to comment.
Mr. Swider declined to comment for Digital World. Mr. Orlando, who remains on the company’s board, did not return requests for comment, and neither did his lawyer.
Trump Media officials did not return requests for comment.
Since Mr. Orlando was the executive with the most frequent contact with representatives of Trump Media, Digital World was hoping that his ouster as chief executive would lead securities regulators to look more favorably on the merger proposal, said one of the people briefed on the matter.
The insider trading investigation is focused on some investors associated with a small Miami-based venture capital firm, Rocket One Capital, that came to the deal because of Mr. Orlando. The group invested in Digital World about two months before the SPAC went public, said three people briefed on the matter.
Soon after the group invested, some employees at Rocket One began to routinely refer to Digital World as the “Trump SPAC,” according to two of those people and documents reviewed by The New York Times.
One focus of the investigation has been Michael Shvartsman, the Miami financier who founded Rocket One and was introduced to Mr. Orlando by a wealth manager, said two people briefed on the matter. Mr. Shvartsman then began inviting colleagues, friends and relatives to join the investor group, according to three people briefed on the matter and documents reviewed by The Times.
Grant Smith, a Florida lawyer who represents Mr. Shvartsman and is a lawyer for Rocket One and another individual, declined to comment.
The Rocket One group eventually invested at least $800,000 into Digital World, according to documents reviewed by The Times. In return, the group’s members got thousands of shares of discounted stock and warrants.
A warrant is a security that entitles an investor to buy shares at a future date at a deeply discounted price.
Federal authorities are particularly interested in a surge in the trading of warrants that occurred before the deal’s announcement on the evening of Oct. 20, 2021. To prove insider trading, legal experts said, the authorities would need to establish that investors in the Rocket One group had invested or traded on confidential information and not mere speculation about a merger.
In return for its investment, Mr. Orlando agreed to put Bruce Garelick, an executive at Rocket One, on Digital World’s board. Mr. Garelick, a former hedge fund manager in Boston, resigned from Digital World’s board in the summer when the company disclosed that federal authorities had sent subpoenas seeking information about Digital World’s dealings with Rocket One.
Mr. Garelick and his lawyer did not return requests for comment.
After investing in Digital World, some employees at Rocket One were tasked with coming up with a strategy to maximize profit from trading the company’s warrants. In one email, reviewed by The Times, a Rocket One employee mentioned having bought securities in Digital World “b/c target is trump media.”
The email was written five days before the deal was announced.
Meanwhile, the clock is ticking on the merger of Digital World and Trump Media. In November, shareholders of Digital World granted the SPAC another nine months to complete a deal. The time expires on Sept. 8.
Without the deal, Trump Media would most likely have to look for new financing just as Mr. Trump’s 2024 presidential campaign could be getting into high gear and with the former president under indictment. The company has been paying its bills with advertising revenue and what’s left of the $37 million raised in an early round of funding.