Trump Media Probe Seeks Information on Obscure Private Equity Firm

(Bloomberg) — A federal probe of Donald Trump’s social media deal is putting a spotlight on Rocket One Capital, an obscure private equity firm with no obvious connection to the transaction beyond a board member.

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The Miami-based private equity firm is one of only two companies identified by name in a regulatory filing late last month by Digital World Acquisition Corp., which described investigations into that financing entity’s planned deal to fund Trump Media & Technology Group Corp. A federal grand jury in the Southern District of New York seeks “information regarding” Rocket One, according to the filing, through subpoenas issued to each board member of Digital World. One of those board members was Bruce Garelick, Rocket One’s chief investment officer.

Garelick resigned from Digital World’s board June 22, according to the filing, shortly after Digital World became aware that all of its directors had received subpoenas on June 16. No other directors have resigned.

Digital World said in the filing that the grand-jury probe could delay or upend its plan to merge with Trump’s media venture, a move expected to infuse it with $1 billion and bolster his Truth Social platform. The filing didn’t say what information the grand jury is seeking on Rocket One, and the private equity firm’s relevance to the probe beyond Garelick’s dual roles is a mystery.

Still, a deeper look at Rocket One provides more insight into some of the entities and personalities in the orbit of the Trump Media transaction.

There’s no allegation of wrongdoing against Garelick or Rocket One in last month’s regulatory filing. Nor is much known about the executive and the private equity firm. But a recent Bloomberg Businessweek investigation citing documents and interviews with people in the marijuana industry shows that Garelick and the person listed as Rocket One’s chief executive officer both are closely involved with a technology known as cashless ATMs.

Such software, which resides on point-of-sale devices, helps cannabis dispensaries work around the banks that want to avoid transacting with them due to the federal illegality of marijuana. That has created a legal gray area that has drawn scrutiny from credit-card processors. There’s no indication that the grand jury’s questions about Rocket One have anything to do with the cashless-ATM business.

‘Cooperating Fully’

Garelick, Digital World and Trump Media didn’t respond to requests for comment. In a statement July 1, Trump Media said it “will continue cooperating fully with inquiries into our planned merger and will comply with subpoenas we’ve recently received.”

Rocket One has a website that’s currently down in “maintenance mode.” A few months ago, the site described the firm as specializing in investments in fintech, adtech, entertainment, and commercial and residential real estate, ranging from $250,000 to $15 million. Its portfolio included High Risk Commerce, a payment-technology company that serves businesses considered high-risk to banks, along with better-known names such as Airbnb Inc.

According to the Businessweek investigation, Rocket One’s top executives have also been involved in cashless ATMs — in part through a company that today has virtually no online profile, called Transact First.

Read more about Transact First’s role in cashless ATMs, a $7 billion banking loophole

Michael Shvartsman, recently listed as the CEO and founder of Rocket One Capital, is also a director or officer of Transact First, according to the company’s incorporation records from 2020. It’s one of the few public records of Transact First. The company’s website has cited “downtime or capacity problems” for months, but in early 2021 it described the company as taking payments worldwide, supporting 160 currencies.

Bloomberg’s monthslong investigation into cashless ATMs found that multiple cannabis industry participants describe Transact First as a major provider of such transactions, and Shvartsman as the main representative for Transact First. Shvartsman declined to comment for that story, and a lawyer for Shvartsman who returned new calls about the probe that seeks information on Rocket One declined to comment.

A call to Rocket One’s phone number in Miami was picked up by an answering system for a firm named Foundation Capital. A LinkedIn page for Shvartsman lists his occupation as founding partner of Foundation Capital, a venture capital and private equity firm apparently unrelated to the California firm of the same name.

Gray Area

Rocket One’s connections to Shvartsman and Transact First are notable because of the gray area in which cashless ATMs exist. They have sprung up in the gap between state law, which permits licensed cannabis sales, and federal law, which considers marijuana an illegal substance. They’ve become so prevalent in US pot dispensaries that they’re estimated to process more than a quarter of the $28 billion in dispensary sales forecast this year.

Given that they charge $2.75 to $3.50 per transaction, they’ve created a lucrative niche in the world of high-risk payments.

While the technology behind cashless ATMs is complex, some lawyers call them legally problematic for a simple reason: Many of them make marijuana purchases look like cash withdrawals from ATM machines to the banks that process them. That means they may circumvent anti-money-laundering controls that require banks to know what and who they’re working with. Visa Inc. and Mastercard Inc. have said they want such transactions off their networks.

According to the Businessweek investigation, which documented multiple marijuana purchases and bank records, banks often unwittingly reimburse cashless-ATM fees, because many banks cover out-of-network cash-withdrawal fees for their customers.

A website with Shvartsman’s bio, also currently down, described him a few months ago as an Odesa, Ukraine-born businessman raised in Toronto who is “a shareholder and partner in multiple companies with financial valuations in the hundreds of millions of dollars.”

Overlapping Pitches

A person in the cannabis industry, who asked not to be identified for fear of jeopardizing relationships with fintech providers, said that after turning down Transact First’s payment solution, the person accepted a meeting with Rocket One at a marijuana convention in Las Vegas in October — only to be pitched payment innovations that in fact belonged to Transact First. Shvartsman and Garelick, the Rocket One investment chief, both were present at that meeting, the person said.

Garelick was previously chief financial officer at LeafLogix, a company now owned by Dutchie that has provided cashless-ATM technology in the cannabis industry. According to his LinkedIn profile, he was with LeafLogix for just over a year, before joining Rocket One in 2020. A spokesperson for Dutchie said Garelick wasn’t employed at LeafLogix when Dutchie began discussing acquiring it. LeafLogix doesn’t have a cashless-ATM product, the spokesperson said, and Dutchie “sunsetted” all LeafLogix payment solutions when the acquisition took effect.

According to past regulatory filings, Garelick was one of six directors or director nominees at Digital World, the financial entity that disclosed the grand-jury subpoenas and underlying investigations by the US Justice Department and the Securities and Exchange Commission.

Digital World is a publicly traded company known as a SPAC, designed to quickly vault a startup onto a stock exchange. A public listing would be a boon for Trump, allowing him to attract equity investment from supporters.

Digital World, run by Floridian Patrick Orlando, was advised on the deal by Shanghai-based ARC Capital, which has helped foreign companies list their stocks in the US. ARC Capital was the only other corporate entity named in the disclosure of the investigation. According to the regulatory filing, ARC Capital is subject to subpoenas by the SEC. The filing didn’t specify whether the Chinese financial advisory firm was also included in the federal grand jury probe, which sought “certain of the same documents” as the SEC investigation.