On Trump’s social media site, “Fund the S.E.C.” has become a rallying cry.
Since last year, the top securities regulator in the United States has been looking into the Trump SPAC deal. There are some unhappy small investors.
The Securities and Exchange Commission is dishonest. The S.E.C. is driven by politics. Cut the SEC’s budget.
Some shareholders of Digital World Acquisition Corp. have had enough of the commission, which is the top securities cop in the country, and they are speaking out loudly about it. Last October, the blank check company agreed to merge with Trump Media and Technology Group. Trump Media and Technology Group is the parent company of Truth Social, a social media platform similar to Twitter that was supported by former President Donald J. Trump. Within a few weeks, the S.E.C. said they were going to look into it. After a year, the deal still hasn’t gone through.
People who say they are angry shareholders are attacking the SEC and calling its investigation a political move in posts on Truth Social. The hashtag #DWACtheSEC is popular. It refers to the stock symbol for Digital World and is a play on the word “whack” for some. There are calls to stop giving money to the S.E.C. Shareholders are getting ready to ask the commission to stop the “garbage” investigation and let the deal go through. Even a weekly video show on Rumble, a right-wing streaming media site that works with Trump Media, asks people to pray for Digital World.
It’s shareholder activism with a Make America Great Again twist.
A Digital World shareholder named Scott Lewczak said, “There is no reason to stop the merger other than to stop Trump from getting his message out to the people.”
Mr. Lewczak is a graphic designer from Nokesville, Virginia, and he posts a lot on Truth Social. He liked the social media company so much that he bought shares of a special purpose acquisition company (SPAC) called Digital World six months ago. Even though the value of his SPAC shares has dropped by about 70% since then, he won’t sell out of principle.
Mr. Lewczak said, “I don’t trust the S.E.C.” “The SEC is not honest.”
The campaign by small investors, who own most of Digital World’s shares, is the latest turn in a deal that has gotten almost as much attention for how strangely it came about as for Trump’s role in it.
In February 2021, Patrick Orlando, the main backer of Digital World and its CEO, started talking with Trump Media about a merger with another SPAC that Mr. Orlando controlled. A few weeks earlier, people close to the former president had started the Trump social media company after he lost the 2020 election and after some of his supporters attacked the U.S. Capitol.
The two sides later decided that Digital World was a better way for Trump Media to go public, since it planned to raise more money ($300 million) through its public offering. This was first reported by The New York Times. Special purpose acquisition companies are “shell” companies that go public, get money from investors, and then look for an operating company to merge with. Many businesses can get to the public markets faster through SPAC mergers than through a traditional initial public offering.
In September 2021, Digital World went public. In its filings, the SPAC told investors that it had not been in serious talks with any possible target about a deal. After a month, Digital World said that it was going to join with Trump Media.
After hearing that the companies had broken the law by talking about a merger before Digital World went public, the S.E.C. began looking into the deal a few weeks after it was announced. Before going public, it’s usually against the rules for SPACs like Digital World to have a goal in mind.
Also, shares of the SPAC were traded a lot more than usual right before the merger of Digital World and Trump Media was announced in October 2021. The feds started their own investigation. Now, regulators and federal prosecutors in Manhattan are looking into the trading and any possible wrongdoing in the way the two parties talked to each other.
Since then, the plan to merge has stalled. Until the investigations are over, it’s not likely that the deal will go through. So, Trump Media can’t get its hands on the $300 million that Digital World got from its IPO.
“The S.E.C. had a rare, clear-cut case to look into,” said Usha Rodrigues, the interim vice provost for academic affairs at the University of Georgia and a legal expert on SPACs. This is because the preliminary talks were not mentioned in the offering documents.
Even though there are investigations going on, small investors like Mr. Lewczak still buy a lot of Digital World stock. S&P Capital IQ says that these types of investors make up about three-quarters of the company’s shareholders. Many of them like Mr. Trump and have followed the former president to Truth Social, even though he is not allowed on Twitter.
Between then and now, Trump Media has joined the shareholders of Digital World in their fight against the S.E.C. The company says that the regulator’s refusal to sign off on the merger is because of partisan politics. It has also said that it is thinking about going to court to force the commission to approve the deal.
Mr. Orlando also joined the effort to get the S.E.C. to change. In a recent regulatory filing, Digital World gave shareholders the S.E.C. investor advocate’s work phone number and email address in case they wanted to ask questions about the review process.
Mr. Orlando and his lawyers didn’t answer questions about what they thought. Representatives for Trump Media and the former president also did not respond to requests for comment.
A spokesman for the SEC didn’t want to say anything. Digital World has said in its paperwork that the many investigations could slow down the approval of the deal.
A professor at George Mason University’s Antonin Scalia Law School, J.W. Verret, said he didn’t see any reason to sue the S.E.C. He said, “There is no there, there.” Mr. Verret added it seems more like “posturing” or an attempt to stir up shareholders.
As Trump Media and Digital World wait for their deal to be approved, which could take many more months, it may be best for them to get a lot of small investors on board. So, Mr. Orlando and the other people who support Digital World are hoping to get an extra year to finish the deal, in the hopes that the investigations will be over by then.
But at least 65% of Digital World’s shareholders need to agree on the extension for it to happen. As of the beginning of September, Mr. Orlando had a long way to go. He has also been posting on Truth Social to get investors excited. A person who knew about the situation said that just over 40% of shareholders had voted in favor of the extension.
The company hopes that shareholders will change their minds by Oct. 10, when the vote count will be announced at a special meeting. The problem is that individual investors, who make up most of the SPAC’s shareholders, are notoriously unreliable when it comes to casting proxy votes. Friday, Mr. Orlando decided to talk to Mr. Trump about Truth Social directly and in public, asking him to promote the shareholder vote. (Even though Mr. Trump has criticized the S.E.C. in the past, he didn’t do anything about it.)
Shares of Digital World have dropped from a high of $97 at the end of March to about $18 because of the delay. The missed deadline for finishing the merger has also put at risk an extra $1 billion in funding that dozens of hedge funds had agreed to give Trump Media once the deal was done.
The company recently avoided a Sept. 8 liquidation date that would have required the SPAC to give investors the $300 million it raised in its I.P.O. back right away. The group of investors that backed Digital World was able to put off the closing until Dec. 8.
But even if the shareholders give Digital World and Trump Media another year to finish the merger, the deal could face regulatory hurdles that can’t be overcome, even if Mr. Trump is involved.
Adam C. Pritchard, a securities law professor at the University of Michigan Law School, said that with everything going on with the deal, it’s possible that Mr. Trump is blaming securities regulators to “create the narrative for why things have fallen apart.”
Mr. Pritchard said he did not see politics at work but a desire by the S.E.C. to rein in the SPACs. He said, “The goal isn’t to get Trump. The goal is to get SPACs.”