SPAC affiliated with Trump’s media company says it has a deal with regulators
The cash-rich special purpose acquisition firm that has an ongoing deal with former President Donald J. Trump’s media company announced Monday that it reached a provisional settlement with securities regulators about an investigation that had hindered the merger.
The Securities and Exchange Commission has investigated whether preliminary merger talks between the SPAC, Digital World Acquisition Corporation and Trump Media & Technology Group violated federal securities laws. The preliminary settlement would require Digital World to pay a fine and amend some of its previous filings to comply with the law.
In a regulatory filing, Digital World said Trump Media indicated it might have reservations about going ahead with the merger if it wasn’t completed by Sept. 8. But the SPAC added that it remains “deeply interested in the transaction” with Trump Media and hoped the two companies could resolve their differences.
If Truth Social’s parent company Trump Media pulls out of the deal, it will be a bitter pill to swallow for Digital World shareholders. Many of them are retail investors who have waited nearly 21 months for the merger to close.
Trump Media representatives did not immediately respond to a request for comment.
Digital World said under the preliminary settlement with the SEC it would pay an $18 million fine and review some of its regulatory filings to comply with federal securities laws.
SPACs, which are set up to raise money from investors and then find a company to buy, are not allowed to conduct serious merger talks before going public. These speculative investment companies have a limited time to complete a merger before they are required to return the money they raised to investors. Federal authorities had been trying to determine whether Digital World’s pre-IPO talks with Trump Media in September 2021 were substantive enough to be made public before the SPAC sold stock to the public.
At the IPO, Digital World raised $300 million from investors. In a subsequent private placement, dozens of hedge funds agreed to invest up to $1 billion in the merged company. But the long delay in completing the merger led some hedge funds to pull out of that financing deal. It is unclear whether the private placement is still valid without additional concessions from the companies.
As part of the preliminary settlement, which requires approval from SEC commissioners, Digital World said it would enter into a “cease and desist” order with the regulator who found the company had violated securities laws “regarding certain statements, agreements and omissions regarding the timing and conversations the company had with TMTG.”
Digital World’s stock price once soared to around $97 before crashing amid all the regulatory delays. The stock, which is largely owned by some 400,000 private investors, closed at just $12 on Monday.
Another investigation that had clouded the merger’s prospects appeared to be resolved last week when federal prosecutors in Manhattan and the SEC filed insider trading charges against three men who made about $22 million trading before the announcement of the merger. in October 2021. Two of the men were early investors in Digital World before it went public, and the other was a former executive of the SPAC.
No one from Trump Media was involved in the insider trading allegations.
If Digital World doesn’t complete its deal with Trump Media or another company by Sept. 8, it must return to current shareholders the $300 million it raised in the IPO. Digital World recently asked its shareholders to approve an extension of the deadline, but will need 65 percent of them to go along.
In Monday’s filing, Digital World said Trump Media was not a party to the preliminary settlement and had not yet agreed to the deal with the SEC. The merger agreement required Trump Media to approve any settlement of an investigation over $100,000.
Digital World also said Trump Media said in a recent email, “it is currently only bound by the merger agreement through September 8, 2023.” Digital World called this an “interpretive divergence” between it and Trump Media.
For months, Trump Media executives and some Digital World shareholders had accused the SEC of using the investigations as an excuse to run out of time by failing to approve the merger.
If Trump Media pulls out, it’s not clear where it would turn to raise funding for its activities. Truth Social, the company’s Twitter-like social media platform, has several million users and has become the main place for Mr. Trump to express his views.