Trump SPAC faces grand jury investigation

Placeholder while article actions load

The company that plans to merge with former president Donald Trump’s social media company has received subpoenas from a federal grand jury, a setback that could complicate Trump’s plans to bring his company to the public markets.

The company, known as Digital World Acquisition Corp., revealed the subpoenas in a Securities and Exchange Commission filing dated June 24 and warned they “could materially delay, materially impede, or prevent consumption” of the deal. If the combination goes through, Trump’s business could gain access to more than $1 billion committed by investors.

The grand jury is at least the third investigative entity to scrutinize Trump’s special purpose acquisition company (SPAC) deal, after the SEC and the Financial Industry Regulatory Authority opened investigations of their own.

Digital World Acquisition did not immediately respond to a request for comment.

The Trump SPAC was flooded with cash soon after launch, but its share price has plunged since the app debuted. It slides 9.6 percent Monday to close at $25.15; by comparison, it was trading above $97 in early March.

According to the filing, the grand jury requested some of the same documents that were sought by the SEC. They include information about communications “with or about multiple individuals” and information regarding a Miami-based investment firm called Rocket One Capital. Also Monday, the company announced the resignation of a DWAC executive who is described as an executive from Rocket One.

Representatives for Rocket One could not immediately be reached. The company’s website appears to visitors as down for maintenance.

Trump had pitched Truth Social, his new social network, as a rival to the Big Tech companies, granting him unchallenged space to deliver his thoughts and build an alternative to what he sees as “the liberal media consortium.” On top of the social network, Trump Media & Technology Group touted plans of a subscription streaming service spanning news, entertainment and podcasts.

The social network’s launch earlier this year was marked by major hiccups. The website remained entirely inaccessible during the first days of its debut because of technical glitches, a 13-hour outage and a 300,000-person waitlist, raising questions about its viability. The app has since seen its downloads plummet, shedding investors, executives and attention.

A SPAC is a shell company that is set up to take a private company public by merging with it. They are called “blank check” companies because investors can purchase shares without knowing what business the SPAC will eventually acquire.

While SPACs in their current form have been around since the early 2000s, they have exploded in popularity in recent years, drawing in celebrities such as Shaquille O’Neal, Jay-Z and Trump. But they have also invited regulatory scrutiny, the frustration of investors who suffered losses and a repudiation from the market.

The deals had become an alternative way to reach the public markets. But SPACs have been hit especially hard amid the recent market downturn, as investors turn away from riskier bets and as regulators have proposed new rules to enhance disclosure requirements and investor protections.

One index that tracks SPAC performance, the De-SPAC Index, has fallen more than 60 percent for the year, compared with the benchmark S&P 500 Index’s drop of roughly 19 percent.

DWAC has lost more than half its value so far this year.

Before Wall Street soured on SPACs, the investment vehicles drew immense interest because they can save companies and investors time and money. Stakeholders can bypass the traditional initial public offering process and strike quickly, taking advantage of dramatic upward swings in the market.

After the initial economic shock at the outset of the pandemic, an investment frenzy in SPACs took off, drawing in hedge funds and retail investors scrambling for the next moneymaker amid the financial chaos spawned by the public health crisis.

Laisser un commentaire