The Securities and Exchange Commission said Thursday it has reached a settlement with the cash-rich shell company that planned to merge with former President Donald J. Trump’s social media company, potentially paving the way for the long-delayed deal to move forward. Under the settlement, Digital World Acquisition Corp. will pay an $18 million fine and review some of its corporate files to comply with federal securities laws. The Securities and Exchange Commission was investigating whether Digital World violated merger laws that govern special purpose acquisition companies.
The SEC has accused Digital World, a special purpose acquisition company, of misleading investors with its disclosures.
Grewal, director of the SEC’s Division of Enforcement, “These disclosure failures are particularly problematic because investors focus on factors such as SPAC’s management team and potential merger targets when making financial decisions.”
Digital World announced a temporary settlement in a regulatory filing this month.
But many hurdles remain for Digital World to complete its merger with Trump Media & Technology Group, the parent company of Truth Social, a Twitter-like platform that has become the former president’s primary megaphone for reaching his supporters online.
Digital World, which raised $300 million from investors in an initial public offering in September 2021, faces a Sept. 8 deadline to complete its deal with Trump Media or be forced into liquidation and return the funds. This week, SPAC announced plans to seek shareholder approval to extend that deadline, but Trump Media has yet to indicate it wants to keep the pending deal through Sept. 8.
Shortly after Digital World and Trump Media announced a deal to merge in October 2021, the Securities and Exchange Commission opened an investigation into whether the parties’ initial merger discussions violated federal securities laws.
Shell companies are created to collect money from investors and then find a company to buy, but they are not allowed to have serious merger discussions before they go public. These companies have a limited time – usually two years – to complete the merger process before they are required to return the cash they have raised to investors.
Last month, New York federal prosecutors charged three men — two brothers and a former Digital World board member — with participating in a scheme that generated $22 million in illegal business profits prior to the proposed merger.
This week, Digital World set August 17 as the deadline to get at least 65 percent of its 400,000 shareholders to agree to an extension that would buy it more time to complete the merger. But last year, when Digital World secured a similar extension, it took several months of voting to get enough shareholders to agree to the measure.
The vast majority of Digital World’s shareholders are retail investors, many of whom are supporters of former presidents and active users on Truth Social. The merger will provide Trump Media with immediate cash to fund Truth Social’s operations. It’s unclear why Trump Media has not committed to giving Digital World more time to complete the merger.