The Washington PostDemocracy Dies in Darkness

Trump SPAC under investigation by financial regulators

Digital World Acquisition Corp. says the SEC and Finra have requested information on stock trading and communications related to its deal with the former president’s company.

The U.S. Securities and Exchange Commission seal is displayed outside its headquarters in Washington D.C. (Andrew Harrer/Bloomberg)
5 min

The publicly traded company that plans to merge with former president Donald Trump’s media company is under investigation by two federal regulators, which have asked for stock trading information and communications.

Digital World Acquisition Corp. (DWAC) disclosed in a Securities and Exchange Commission (SEC) filing that it had received “certain preliminary, fact-finding inquiries” from the Financial Industry Regulatory Authority in late October and early November regarding stock trading tied to the merger agreement announced Oct. 20.

Separately, the SEC asked for information related to meetings of the company’s board of directors, information on investors, and communications, according to the filing.

The company said the filing should not be construed as an indication that either agency has concluded anyone violated the law. Spokespeople for DWAC and Trump did not immediately respond Monday to requests for comment.

Trump’s new social media SPAC is soaring. Also, what is a SPAC?

A special purpose acquisition company (SPAC) is a shell company that is set up to take a private company public by merging with it. They are called “blank check” companies because investors can purchase shares without knowing what business the SPAC will eventually acquire. For investors, the hope is that the stock price will shoot up when an acquisition target is announced.

SPACs can offer companies a faster and more streamlined path to the public market than an initial public offering. They have become more common in the past year, with such brands as WeWork, DraftKings and Virgin Galactic Holdings cutting deals with them.

SPACs also allow companies to raise additional capital from private investors while waiting for the merger to complete. Over the weekend, DWAC and Trump Media & Technology Group announced they had entered into agreements to raise $1 billion from an unidentified group of investors.

The former president, who’s been banned on Twitter and Facebook, announced the launch of the Truth Social platform in October. Trump’s company was presented as a “media powerhouse” that can compete with a “liberal media consortium” and Big Tech companies, which he has accused of silencing conservative voices, according to a company presentation.

Pranksters have already defaced Trump’s new social network

Trump’s social media presence was instrumental to his political rise and his presidency. Throughout his time in office he often used his Twitter account to complain about media coverage he didn’t like, berate perceived political enemies and speak directly to his base.

But Twitter permanently banished Trump after the Jan. 6 attack, when a mob of his supporters stormed the U.S. Capitol in an attempt to disrupt Congress from certifying Joe Biden’s victory in the 2020 presidential election. The company took issue with tweets it said violated its policies against glorifying violence.

Facebook, now known as Meta, indefinitely banned Trump for using the platform to “incite violent insurrection against a democratically elected government,” according to a statement issued by chief executive Mark Zuckerberg. Trump also prohibited from posting on Instagram.

Truth Social would compete with Facebook and Twitter, according to the overview, while separate offerings called TMTG+ and TMTG News would go up against Netflix, Disney Plus, CNN and the podcast maker iHeart Media. It also described a “Long Term Opportunity TMTG Tech Stack” that would fall into the cloud-computing sphere.

The presentation included several slides of Trump’s past ventures, including highlighting his large social media following on Facebook, Twitter and Instagram before he was banned from those platforms.

Trump, still barred from Twitter and Facebook, to launch social network in ‘fight back’ against Big Tech

Some have questioned whether Trump’s company can follow through on its broad-reaching plans.

In a Nov. 17 letter to SEC Chair Gary Gensler, Sen. Elizabeth Warren (D-Mass.) expressed concern that the new media company does not have a clear business model, noting that its corporate overview documents do not list any officers, operations or employees. She cited a New York Times report that said Trump had discussed the deal with business partners as far back as March, which the newspaper described as a possible violation of securities laws and stock exchange rules.

In documents filed with the SEC, its chief executive is listed as Patrick Orlando, a finance executive who is also CEO of a company in Wuhan, China. DWAC’s corporate address matches that of a WeWork co-working space in Miami. On Monday, Trump’s company announced that Rep. Devin Nunes (R-Calif.) will retire from Congress to become its CEO.

Warren said she is concerned that other SPAC deals, too, could be used to enrich professional money managers such as hedge funds and private equity firms at the expense of individual investors.

“The reports that DWAC may have violated securities laws and harmed investors during its acquisition of Trump Media and Technology Group are deeply troubling and provide an opportunity for the SEC to follow through on its commitment to investigate wrongdoing and fraud in the SPAC space,” Warren wrote.

Trump and his political team had previously launched a blog called “From the Desk of Donald Trump.” The blog was shut down after just 29 days after receiving very little readership.

DWAC’s stock skyrocketed when it announced its venture with Trump. On Monday, it closed down 2.6 percent to $43.81 a share.

Jonathan O’Connell contributed to this report.