Former President Donald Trump has always been a controversial figure. He's immensely popular among his supporters even though he left the White House. In October, Digital World Acquisition (DWAC) announced a merger with TMTG (Trump Media and Technology Group). While DWAC stock has rewarded investors with sharp gains since the merger was announced, it could also add to Trump’s legal troubles.
Incidentally, DWAC launched barely a month before the merger announcement with TMTG was made. Scores of SPACs have been hunting for targets. Companies are spoilt for choice with many SPACs in the market. Usually, SPACs take at least six months to find the target after doing their due diligence.
DWAC stock has been very volatile.
DWAC stock was trading close to the SPAC IPO price of $10 when the news of its merger with Trump’s TMTG came out. The stock went as high as $175 at one point but currently trades at less than a third of that.
Still, the stock trades at a premium of over 450 percent from the SPAC IPO price. Barring Churchill Capital IV (CCIV), which merged with Lucid Motors, it's hard to figure out any SPAC that gave such returns before the merger.
Are there red flags in DWAC’s merger with Trump Social Media?
DWAC’s merger with TMTG looks somewhat different from the other SPAC merger. When companies announce the SPAC merger, they provide a lot of financial data and projections. However, in DWAC’s case, all we know is the indicative valuation. There still isn't any clarity on the PIPE (private investment in public equity). Usually, PIPE details are only revealed during the initial announcement.
Previously, managing partners of ARC Group Ltd, which is a financial adviser to DWAC, ran into troubles with the SEC. Another notable aspect of the transaction has been the fact that DWAC’s volumes spiked multi-fold on Oct. 20. The merger was announced after the markets, so the heavy volumes on Oct. 20 are bound to raise suspicions.
Also, the deal’s announcement, which came just over a month after the SPAC IPO, raised concerns about the due diligence done by DWAC sponsors. Could the deal have been in mind before the SPAC was formed?
Elizabeth Warren calls on the SEC to investigate the deal
Senator Elizabeth Warren has called upon the SEC to investigate the SPAC transaction. She termed DWAC’s deal with TMTG as a “textbook example of a SPAC misleading shareholders and the public about materially important information.” She also points to media reports that say that Trump was in talks with DWAC sponsors even before the SPAC filed for the IPO.
The regulations require SPACs to disclose any conversations with potential targets. Warren accused DWAC and TMTG of “brazenly flouting these rules.” She accused DWAC of hiding material facts from investors and added “this omission had the result of enriching big investors while trapping retail investors in a stock bubble.”
Trump’s legal troubles
Warren asking the SEC to investigate TMTG wouldn't be the only legal trouble for Trump. He's facing many more troubles, including his alleged role in the Capitol Hill Violence. A lot of Trump bashers want to see him indicated. However, Trump supporters hope that he will be the next U.S. president.
TMTG, which will house Trump’s Social Media, could help him connect better with his voter base. Twitter suspended Trump's account after the Capitol Hill violence. For now, the DWAC-TMTG merger might just add to the long list of Trump’s legal woes.