Regulators have some tough questions for Trump-linked Digital World Acquisition Corp.

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Securities and Exchange Commission Chairman Gary Gensler and other regulators want some details on the so-called “Trump SPAC.”

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Digital World Acquisition Corp. DWAC,
-2.60%,
The blank-check company that took Donald Trump’s startup media company public, according to a Monday SEC filing, closed on $1 billion in private equity funding over the weekend, but the company also disclosed that it is under scrutiny by federal regulators. Want to know about business activity and communications centered around DWAC and the announcement of its plans to merge with Trump Media & Technology Group in October.

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“DWAC has received some preliminary, fact-finding inquiries from regulatory authorities with which it is cooperating,” the filing reads. It received letters of inquiry from the Financial Industry Regulatory Authority and the SEC in late October and early November, making it the first MAGA meme after SPAC shares rose 1,600% following the announcement of the proposed merger with TMTG, DWAC said. Gaya. Stores.

In the weeks following that wild spike, reports emerged that DWAC’s founder—Florida and Wuhan, China-based financier Patrick Orlando—meeted with Trump in early 2021, long before the DWAC’s listing on September 2. If both planned to make TMTG public through the DWAC and did not disclose that information to investors, it would be in violation of securities regulations governing blank-check companies.

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Those reports came to the attention of Sen. Elizabeth Warren, who Wrote an open letter to Gensler on 17 November Demanded that he take a closer look at DWAC.

But apparently, Gensler was already on it.

“Given all the media coverage of SPAC and the way it does business, it’s really no surprise,” said James Angell, a professor at Georgetown University’s McDonough School of Business.

“When SPAC goes public, it should make full disclosure,” explained Engel. “If they went public without telling investors they were talking to Mr. Trump, a regulator might have to ask some questions.”

According to Monday’s filing, the SEC requested “documents relating to meetings of the DWAC’s Board of Directors, policies and procedures relating to business, banking, telephone and email addresses, identification of certain investors, and certain documents and communications between DWAC.” Did. And TMTG.”

But the filing also made it clear that “the investigation does not mean that the SEC has concluded that anyone has violated the law or that the SEC has a negative opinion about DWAC or any person, event or security.”

At least to one securities attorney, that explanation seemed wrong.

“What the SEC is asking for; business information, names of investors, the call with Trump, seems very detailed and specific,” said Francis Curran, a securities litigation attorney at Cudman Trechten Elo Posner.

Monday’s filing was apparently about DWAC’s announcement that it had raised another $1 billion through a private investment in a public equity deal, often referred to using the abbreviation PIPE. For SPAC, PIPE is a way to raise more private capital.

For DWAC, the new funding means that instead of its announced deal to take the former president’s yet-to-be-launched media brand to the public markets at a valuation of $875 million, it will now do so at about $3 billion.

But the DWAC investigation also raises a bigger question about its choice of TMTG, a company that—despite promises to leverage Trump’s brand to build a “non-voke” alternative media empire—goes public without any tangible revenue. Preparing to enter the market. – Manufacturing a product at a valuation of $3 billion.

“At this point, it’s vaporware,” Engel said of TMTG. “But our former president has a certain amount of popularity in this country and some very real media savvy. It is a question of how much of the Trump brand can be monetised.”

The answer to how quickly DWAC and TMTG raised $1 billion for PIPE is that a lot of the brand could be monetized, and it doesn’t appear that Gensler will have any recourse to stall the deal other than delay. Listing with more questions.

“A hundred years ago, this would have been a blue sky law,” Curran said, adding that in the early 20th century, state-by-state regulations designed to protect investors from fraud in the speculative frenzy that began in 1929 The market caused the crash. ,

However, for Engel, the controversial merger between DWAC and TMTG is not so much a new frontier in regulatory activism, but an acknowledgment of a very American tradition.

“One of the beautiful things about the American system is that the way we address real corruption is that it’s so easy for you to make money when you step down,” he said. “This is a great opportunity for Mr. Trump to capitalize on his presidency.”

Shares of DWAC were trading down more than 2% on Monday afternoon.

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