In October 2021, former President Donald Trump announced that he is forming a media company, Trump Media & Technology Group, its first project being a social media platform. Trump Media was planning to go public through a merger with a special purpose acquisition company (SPAC), Digital World Acquisition Corp. (DWAC). On Dec. 6, 2021, Digital World revealed that regulators from the U.S. Securities and Exchange Commission (SEC) are investigating the proposed deal.
At issue is whether Digital World had a deal lined up with Trump Media & Technology Group before issuing its own shares. SPACs, also called blank check companies, are supposed to sell their shares to investors before they forge deals to merge with other companies. These merger targets typically are private companies that use this process as a shorter and quicker route to going public than a traditional initial public offering (IPO).
- The Trump Media & Technology Group is supposed to go public via merger with a SPAC.
- That SPAC, Digital World Acquisition Corp. (DWAC), is being investigated by the SEC.
- At issue is whether Digital World planned this merger before its own IPO.
- If so, that would be violation of rules governing SPACs.
- The investigation may create a major hurdle for the proposed deal.
Digital World raised nearly $300 million through its own IPO in September 2021. During the week ending Dec. 3, 2021, Trump Media announced that other, as yet unidentified, investors had agreed to put an additional $1 billion into the company.
If regulators from the SEC conclude that Digital World made any false or misleading statements in its filings, that may result in legal action against that company or its backers. That, in turn, could present a major hurdle for the announced merger.
The Key Allegation
Digital World emphasizes that the existence of an SEC investigation is not evidence that any securities laws or regulations have been violated. The key allegation reportedly under investigation is whether the backers of Digital World had planned to bankroll Trump Media as far back as April 2021. Since Digital World would not go public until September 2021, this would, as noted above, have violated the rules regarding the creation of SPACs.