Donald Trump’s plan to launch “Truth Social”, a special purpose acquisitions backed social media company, early next year may have hit a roadblock after US regulators issued a request for information on the deal on Monday.
The request from the SEC and the Financial Industry Regulatory Authority for information from Digital World Acquisition Corp (DWAC), a blank-check SPAC that is set to merge with Trump Media & Technology Group, comes as a powerful Republican congressman, Devin Nunes, announced he was stepping out of politics to join the Trump media venture as CEO.
The twin developments set the stage for a major political battle over Truth Social, a platform that purportedly plans to challenge Twitter and Facebook, social platforms that have banned or curbed the former president over his involvement in stoking the 6 January Capitol riot.
The request for information relates to DWAC board meetings, policies about stock trading, the identities of certain investors and details of communications between DWAC and Trump’s social media firm. It comes three weeks after Democratic Senator Elizabeth Warren asked the SEC to investigate possible securities violations at the company.
Warren quoted news reports that said DWAC “may have committed securities violations by holding private and undisclosed discussions about the merger as early as May 2021, while omitting this information in [SEC] filing and other public statements.”
But investigations into the Trump project appear to predate Warren’s request.
“According to the SEC’s request, the investigation does not mean that the SEC has concluded that anyone violated the law or that the SEC has a negative opinion of DWAC or any person, event, or security,” DWAC said in a statement.
Last week, Reuters reported that Trump’s new company is trying to raise up to $1bn by selling shares to hedge funds and family offices at a price higher than the SPAC pre-merger valuation of $10 a share.
It also comes as the launch of the Trump media venture failed to meet a November deadline to release an invitation-only beta version of the platform.
In October, soon after the deal was announced, shares in DWAC soared by more than 1,200%, suggesting the implied value of the enterprise could reach $8.2bn. Trading in the company was halted 12 times as Trump fans pumped the stock on Reddit and StockTwits, pushing Trump’s 58% stake in the combined TMT-DWAC company to $4.8bn.
DWAC shares were trading at $43.19 per share on Monday morning, down almost 3% on news of the filing, even as equity markets broadly were higher.
According to a press release from Trump Media & Technology, the media operation will begin operations in the first quarter of next year, with Truth Social launching ahead of the 2022 midterm election and a potential subscription video on-demand service coming later.
Milos Vulanovic, an expert in SPAC deals at the Edhec Business School in Nice, France, told the Guardian that Trump’s politically oriented media venture could bring “new investors who may not fully understand how SPACs work” into the market. “I don’t see why Trump-sponsored media couldn’t take 10% of the social media market and make huge money for Trump and his investors.”