Social media

Donald Trump’s social media business under close scrutiny by market regulators

NEW YORK – Regulators are studying the deal that would take Donald Trump’s new social media company to the stock market, a deal that has drawn both legions of fans of the former president and those looking to turn a quick profit.

The company in partnership with Trump Media & Technology Group acknowledged the inquiries in a filing it filed with regulators on Monday. He also gave a financial forecast for the company, which hopes to compete with Twitter and other platforms that have banned Trump, as well as Netflix and other video streaming services. He said over the weekend that he was lining up $ 1 billion in investments pledged by a group of anonymous institutional investors.

Regulatory matters focus on Trump’s media firm’s October announcement of its merger with Digital World Acquisition Corp. The company had been launched on the US stock market three weeks earlier for the sole purpose of finding a private company to buy. It is often referred to by its trade symbol “DWAC”.

DWAC said Monday it was cooperating with “preliminary fact-finding inquiries” of the Securities and Exchange Commission and the Financial Industry Regulatory Authority.

Early last month, the SEC requested documents relating to DWAC board meetings, trade policies, and communications between DWAC and Trump’s media company, among others. According to DWAC, the SEC’s request stated that “the commission’s investigation does not mean that the SEC has concluded that someone has broken the law or that the SEC has a negative opinion of DWAC or any person. or security “.

The SEC could look into whether DWAC and Trump’s company had conversations about a deal ahead of DWAC’s first public offering of shares, said Jay Ritter, a University of Florida professor and IPO expert. DWAC is sitting on approximately $ 293 million in cash raised through its IPO.

Under the rules that apply to these blank check companies, known as Special Purpose Acquisition Companies, or SPACs, they are not expected to align acquisition targets before selling their own shares. On November 17, Senator Elizabeth Warren wrote a letter to SEC Chairman Gary Gensler asking if the agency was investigating whether DWAC had broken the law by holding such talks and deceiving potential investors by not informing them not before its IPO.

When asked how worried he would be about the SEC investigation if he was at the front desk, Ritter replied, “It depends on what I knew. It could be harmless or pro forma, or it could be really serious. “

It is not clear whether the issues Warren raised were the cause of the regulatory demand for documents. DWAC and Trump Media did not immediately respond to requests for comment on Monday.

An SEC spokesperson declined to comment beyond saying, “The SEC does not comment on the existence or non-existence of a possible investigation.”

Seapartely, the Financial Sector Regulator, or FINRA, called in late October and early November for a review of DWAC’s stock trading ahead of the announcement of the October 20 merger deal. This could be an indication of an insider trading research, Ritter said, although it is notoriously difficult to prove.

The announcement of the merger took DWAC shares from $ 9.96 to $ 94.20 in just two days, as Trump supporters and money-seeking investors quickly piled up. The shares have since fallen back to around $ 43.

Such a high price indicates high expectations for Trump’s media business among at least some investors. In its filing with regulators, DWAC also gave a financial forecast for the company, which has yet to be launched.

The presentation included forecasts that the company’s Truth Social service could have 81 million users by 2026, nearly 7 million more people than those who voted for Trump in the last US presidential election. .

In five years, Trump Media is expected to generate nearly $ 3.7 billion in revenue, according to the filing. That’s more than the annual revenue of retailer Restoration Hardware, RV maker Winnebago Industries and entertainment giant iHeart Media, which owns more than 800 radio stations.

SPACs are generally known to give very optimistic predictions about their future growth in investor presentations.

DWAC was shaky in Monday trading after the filing. It opened with a slight gain before falling to a loss of 3.2%.

Stan Choe and Bernard Condon, Associated Press