A publicly traded investment vehicle that has announced plans to merge with Donald Trump’s Truth Social media company has reached a settlement with the Securities and Exchange Commission over fraud charges that it misled investors about the deal.
As part of the settlement, the Digital World Acquisition Corporation
DWAC,
— a special purpose acquisition company (SPAC), or “blank check” company formed in 2021 — was ordered to pay an $18 million civil penalty fee in the event that it completes its planned merger with the Trump Media and Technology Group and takes it public.
Regulators say the DWAC was formed in early 2021 with an expressed plan to acquire Trump’s media company, the parent of the Truth Social media network, a Twitter-like business created to appeal to Trump’s followers.
But the SEC says the company’s executives didn’t disclose that fact to investors as they raised money to fund the venture, which amounted to fraud. DWAC raised nearly $300 million in its initial public offering.
A SPAC is typically created as a shell company to raise money for an acquisition after the venture goes public. In these deals, the company usually decides its merger target after it raises cash from investors and goes public.
The SEC said DWAC’s former CEO, Patrick Orlando, and others involved with the company, had extensive merger talks with Trump’s company dating back as early as February 2021. But when DWAC filed forms with the SEC in September of that year related to its IPO, it didn’t disclose those discussions, which violated SEC requirements, the regulator said.
A month later the two companies announced plans to merge. The deal has yet to be completed.
“DWAC failed to disclose its discussions with TMTG and failed to disclose a material conflict of interest of its CEO and Chairman,” said Gurbir Grewal, director of the SEC’s enforcement division. “In the context of a SPAC – a ‘blank-check’ entity without business operations – these disclosure failures are particularly problematic because investors focus on factors such as the SPAC’s management team and potential merger targets when making financial decisions.”
A message sent to representatives of DWAC wasn’t immediately returned.
Late last month, three Florida men, including a DWAC board member, were hit with federal criminal insider trading charges related to the announcement of the merger with Trump’s company. The men are accused of making $23 million as a result.