SEC Investigates Trump's SPAC Deal

DWAC and TMTG Under Government Scrutiny

Digital World Acquisition Corp. (DWAC) has disclosed in a recent regulatory filing that it is facing inquiries from the U.S. government concerning its planned merger with Trump Media & Technology Group (TMTG). TechCrunch previously reported on the proposed combination between the SPAC and the company linked to former President Donald Trump.

Initial Concerns and Developments

Initial assessments were largely critical of the deal, the stated product objectives, and the overall approach. Several developments have since unfolded.

• In late October, The New York Times revealed that discussions between Donald Trump and DWAC CEO Patrick Orlando occurred prior to the formation of the SPAC. The Times noted that this could potentially represent a circumvention of securities regulations and stock exchange rules, according to legal experts.
• On December 4th, DWAC and TMTG announced they had secured “subscription agreements for $1 billion in committed capital” to be received upon completion of the business combination, as detailed in a press release.

Given these developments, it is unsurprising that the Financial Industry Regulatory Authority (FINRA) and the U.S. Securities and Exchange Commission (SEC) are now conducting investigations.

DWAC’s Response to Inquiries

The recent DWAC filing emphasizes that the company has not yet been formally accused of any wrongdoing. However, the level of scrutiny is significant for a deal that presented considerable ambiguity from the outset.

The investor presentation for the TMTG/DWAC merger lacked substantial detail. Furthermore, concerns arose regarding the proper sourcing of the code utilized in the development of TMTG’s flagship product, TRUTH Social.

Questions Surrounding the Merger

The rationale behind the SPAC’s decision to merge with a venture that appeared to be more conceptual than fully developed remained unclear. The method by which the valuation was determined also presented a puzzle, as did the identities of the investors contributing the $1 billion in funding.

Implications for SPACs

This situation reflects poorly on SPACs, which have already faced skepticism due to their complex structure. This mechanism allows companies without established products to become publicly traded through a less rigorous process than traditional IPOs. The negative perception contributed to SPACs being referred to by a less favorable name until a recent, temporary rebranding effort.

Further updates on this matter will be provided as they become available.