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SEC Investigating Donald Trump’s Social Media SPAC Deal

Jill Goldsmith
·3-min read

The SEC is probing Digital World Acquisition Corp, the publicly traded special-purpose vehicle that plans to merge with former President Donald Trump’s social media startup.

DWAC revealed in a filing today that it has received a request for documents relating to “meetings of DWAC’s Board of Directors, policies and procedures relating to trading, the identification of banking, telephone and email addresses, the identities of certain investors, and certain documents and communications between DWAC and TMTG” – or Trump Media & Technology Group, chaired by Trump.

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It said the investigation “does not mean that the SEC has concluded that anyone violated the law or that the SEC has a negative opinion of DWAC or any person, event, or security.”

Digital World launched last year and went public in September on the Nasdaq. The shares surged in late October after it announced plans to merge with Trump’s media company, a startup that plans to launch a social media platform called Truth Social and a subscription streaming service.

DWAC also noted that other “preliminary, fact-finding inquiries from regulatory authorities” it’s received include a request for information in in late October and in early November from FINRA (The Financial Industry Regulatory Authority) surrounding events (specifically, a review of trading) that preceded the public announcement of the October 20 merger agreement.

“According to FINRA’s request, the inquiry should not be construed as an indication that FINRA has determined that any violations of Nasdaq rules or federal securities laws have occurred, nor as a reflection upon the merits of the securities involved or upon any person who effected transactions in such securities,” the filing said.

Trump Media & Technology and Digital World puts an initial enterprise value of $875 million on the company said Trump Media’s growth will be funded initially by DWAC’s cash in trust of $293 million.

DWAC CEO Patrick Orlando said the funds will fuel “TMTG’s scale up, including to provide world class leading technology services to build strong and secure social networks and diverse media offerings. Given the total addressable market and President Trump’s large following, we believe the TMTG opportunity has the potential to create significant shareholder value.”

SPACs are basically created by a sponsor and a group of executives looking to sell shares in an IPO and use the proceeds buy a real company. There’s been an explosion of them over the past year. After a deal, the surviving company is the one purchased. This deal is unusual because SPACs don’t often merge with startups. SPACs have timeline of 18 months to a two years to find and consummate a merger. The individuals involved are only allowed to start discussions with potential targets after the SPAC is launched.

Trump has been searching for an alternative platform since he was kicked off Twitter following the insurrection at the U.S. Capitol on Jan. 6 where a mob of his supporters tried to overturn the results of the 2020 presidential election by blocking its certification by Congress. He had 88.7 million followers on Twitter. Shares of the digital world SPAC quadrupled on heavy volume from $10 to over $40 a share when it announced the deal with Trump. The shares are down 1.62% at $44.24.

Digital World said this weekend that it has secured commitment for $1 billion in capital from “a diverse group of institutional investors” for when the merger with Trump’s company is completed. The combined entities should see proceeds of an estimated $1.25 billion.

The financial support “sends an important message to Big Tech that censorship and political discrimination must end,” said Trump in a statement.

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