Trump’ Digital World SPAC Deadline Approaches

by Wall Street Rebel - Michael London | 04/02/2023 11:15 AM
Trump’ Digital World SPAC Deadline Approaches


Executives are working around the clock to complete the merger between Digital World and Trump Media by the September 8 deadline, even though investigations have slowed the process.


An unheralded investment banker made a bombshell announcement about a blockbuster deal nearly eighteen months ago: former President Donald J. Trump intended to launch a social media company with hundreds of millions of dollars, which his so-called blank-check company would fund.

Truth Social is a social media platform with millions of users, including a previous president of the United States. But the federal government is currently investigating the business that was supposed to provide the funding for it. Patrick Orlando, who was the primary architect of the deal, was removed from his position as chief executive of Digital World Acquisition Corp. at the end of March.

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According to people who were briefed on the matter, the officials at Digital World hoped that the departure of Mr. Orlando would pacify the federal authorities and lead to the approval of the merger with the parent company of Truth Social, which is Trump Media & Technology Group.

That transaction has been thwarted as a result of two escalating federal investigations. The primary focus of the probe is on whether or not any federal securities laws were broken during preliminary merger talks between Digital World and Trump Media. The second investigation looks into whether or not there was improper trading behavior on the part of an early group of investors in Digital World. These investors were brought into the deal by Mr. Orlando.

If the merger is not completed within the next six months, the $300 million in capital raised from investors in 2021 through an initial public offering by Digital World, which was established as a special purpose acquisition corporation, will need to be returned. However, it is not entirely clear that the investigations conducted by the Securities and Exchange Commission and federal prosecutors in Manhattan will be finished in time to allow the SEC to approve the merger as required.

Executives from Trump Media and some shareholders of Digital World have claimed that the SEC is attempting to waste time to gain an advantage. In February, representatives from Trump Media sent a letter to several Republican members of Congress, asking them to open an investigation into the refusal of the SEC to approve the deal. In the letter, they accused regulators of bias against the former president. Trump Media also accused the SEC of being biased against the former president.

Eric Swider, a member of the Digital World board who recently replaced Mr. Orlando in the role of interim chief executive, wrote on Truth Social in the hours following the indictment of Donald Trump by a grand jury in Manhattan on Thursday: "Never been more of a reason to fight on and never give up."

Devin Nunes, a former representative of the United States who is now the chief executive officer of Trump Media, expressed his frustration with the holdup on Thursday night. Mr. Nunes stated this while speaking to Fox News, "They even go after people we are trying to do business with so that they can prevent us from having access to the public markets."

After The New York Times reported that Trump Media representatives had met with representatives of Digital World and another SPAC led by Mr. Orlando to discuss the possibility of a merger, federal authorities began investigating the deal. The investigation was initiated shortly after The New York Times published the news.

Before going public, special purpose acquisition companies (SPACs) are not permitted to engage in serious merger discussions; if they do so, they risk violating federal securities laws. The federal authorities are investigating whether Digital World's discussions with Trump Media were substantive enough to warrant disclosure before the SPAC selling shares to the general public in September 2021.

Attorneys for Digital World had informed the SEC that any conversations their client had with representatives of Trump Media before the initial public offering were inconsequential.

According to Stanford Law School corporate law professor Michael Klausner, who was a vocal opponent of SPACs before last year's market crash, "If it was clearly prearranged, that was an egregious violation." If the SEC discovers that the transaction disclosures violate any applicable security laws, it can put a stop to the merger.

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Mr. Orlando, who continues to serve on the company's board of directors, did not respond to requests for comment, nor did his attorney.

In order to get the merger proposal approved by securities regulators, Digital World reportedly thought that replacing Mr. Orlando as CEO would help. Mr. Orlando was singled out as the most connected executive to the Trump Media team because of this.

The investigation into possible insider trading is centered on a group of investors connected to Rocket One Capital, a modest Miami-based venture capital firm. The group invested in Digital World approximately two months before the SPAC went public. These investors became involved in the transaction because of Mr. Orlando.

Shortly after the group invested, some Rocket One employees began referring to Digital World as the "Trump SPAC routinely," according to two of those people and documents reviewed by The New York Times. This was deduced from the papers' contents.

According to two people with knowledge of the situation, one of the main targets of the investigation is Michael Shvartsman, a Miami financier who founded Rocket One and was introduced to Mr. Orlando by a wealth manager. The Times has reviewed documents and spoken with three people who say that Mr. Shvartsman began inviting coworkers, friends, and family to join the investor group.

Grant Smith, a lawyer in Florida who represents Mr. Shvartsman as well as Rocket One and another individual, declined to comment. Mr. Smith represents Mr. Shvartsman.

According to the documents that were looked over by The Times, it was eventually determined that the Rocket One group had put at least 800,000 dollars into Digital World. In exchange for their participation, the group members were given thousands of warrants and discounted shares of stock.

A warrant is a type of security that grants the holder the right to buy shares at a significantly reduced price at some point in the future.

The surge in the trading of warrants that took place in the hours leading up to the evening of October 20, 2021, when the deal was officially announced, is of particular interest to the federal authorities. According to the opinions of various legal experts, for the authorities to prove the crime of insider trading, they will have to prove that investors in the Rocket One group traded or invested based on confidential information, as opposed to merely speculating about a merger.

The investment from Rocket One was contingent on Mr. Orlando's promise to place Bruce Garelick, an executive at Rocket One, on the board of directors of Digital World. After the company disclosed in the summer that federal authorities had sent subpoenas seeking information about Digital World's dealings with Rocket One, Mr. Garelick, a former hedge fund manager in Boston, resigned from the board of directors. Information related to Digital World's business dealings with Rocket One was the subject of the subpoenas.

After Rocket One invested in Digital World, some of its employees were tasked with devising a plan to maximize profit from trading the company's warrants. This was done so that Rocket One could continue making investments. An employee of Rocket One stated in an email that they had purchased securities in Digital World "because the target is trump media." This email was obtained and examined by The Times.

The email was composed five days before the announcement of the deal was made.

In the meantime, the time limit for the merger of Digital World and Trump Media is rapidly approaching. In November, the shareholders of Digital World granted the SPAC an additional nine months to finalize a transaction. The allotted time will run out on September 8th.

If the deal does not go through, Trump Media will most likely be forced to look for new funding just as Mr. Trump's presidential campaign in 2024 could be getting into high gear and the former president is being indicted. Advertising revenue and the portion of the initial funding round totaling $37 million that was not used have been the primary means by which the company has been meeting its financial obligations.

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