Two US regulatory agencies are investigating the special purpose acquisition company (SPAC) that plans to take former President Trump’s nascent social media company public. Digital World Acquisition Corp. (DWAC) said Monday that it has received inquiries for information from the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
The SEC is interested in documents related to communications between the SPAC and Trump’s social media venture, including “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 the Trump Media and Technology Group, (TMTG).
FINRA, meanwhile, is seeking details about a review of trading that happened prior to the October 20th announcement that DWAC was merging with TMTG. According to DWAC’s Monday regulatory filing, the inquiries occurred in late October and early November.
If either agency finds evidence of improper financial dealings in the SPAC’s inception, it could derail the project, leaving the fate of Trump’s media company in jeopardy. And SPAC shareholders can withdraw their investment at any time before going public. While 2020 was a big year for SPAC deals, in recent months, investors’ excitement about the deals has cooled. The Wall Street Journal reported last week that since July, the average SPAC deal has lost more than half its money before the deal closes.
If approved, the SPAC deal would give Trump’s company nearly $300 million to get Truth Social, which is essentially a Twitter clone, up and running. It would also bring the company public, with a listing on the Nasdaq exchange. TMTG said in a news release on Saturday that it had agreements with a “diverse group of institutional investors” — whom it did not identify — to raise about $1 billion as part of a concurrent private funding round. According to the release, DWAC projects Truth Social to reach 40 million subscribers and 81 million total users by 2026.
DWAC said it was cooperating with the information requests and noted in its SEC filing that “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.” It made a similar note about FINRA’s request that its inquiry “should not be construed as an indication that FINRA has determined that any violations of Nasdaq rules or federal securities laws have occurred.”
Trump first registered TMTG in February and, in its initial investor presentation, said it planned to build a “media powerhouse ... to fight back against the ‘Big Tech’ companies of Silicon Valley who have used their unilateral power to silence opposing voices in America.” The former president was barred from Twitter, Facebook, and other social platforms in January after his supporters carried out an insurrection on the US Capitol.
In a November letter to SEC chair Gary Gensler, Sen. Elizabeth Warren (D-MA) asked the SEC to investigate the Trump SPAC deal, saying that DWAC and TMTG had “brazenly flouted” securities rules. Warren cited an October 29th New York Times article that reported that DWAC head Patrick Orlando had been in discussions for a deal with Trump since at least March. Warren pointed out that SPACs “are required to disclose any direct or indirect conversations with potential target companies.”