Digital World Acquisition today in an 8-K said it has filed a lawsuit against former CEO Patrick Orlando and his ARC Global Investments II for alleged interference with the SPAC’s long-gestating merger with Trump Media & Technology Group (TMTG). Orlando promptly counter-sued.
Digital World’s lawsuit seeks a declaratory judgment that the appropriate conversion ratio of shares on the deal is 1.34:1, as previously disclosed in the Proxy Statement, damages for interference with the contractual and business relationship between TMTG and Digital World, damages for conspiracy with unnamed co-conspirators to tortuously interfere with the contractual and business relationship between TMTG and Digital World, damages to TMTG as a result of the alleged breach of fiduciary duty by Orlando, which exposed Digital World to an SEC fine of $18 million and Orlando’s allegedly continuous obstruction of Digital World’s merger with TMTG “to extort various concessions that only benefit him and harm Digital World and its shareholders.”
The $18 million penalty stems from an SEC investigation that found Digital World discussed a merger with Trump Media before the SPAC’s IPO, which is a violation of law. The fine would be owed only if the merger ever closes.
The suit also seeks damages from Orlando and ARC “for wrongfully asserted dominion over Digital World’s assets inconsistent with the SPAC’s possessory rights over those assets.”
On Feb. 28, Orlando and ARC were served with the complaint. Orlando sued Digital World later that same day.
His complaint alleges impending violation of the Digital World Charter for failure to commit to issue the number of conversion shares to ARC that ARC claims it is owed upon completion of the business combination with ex-president Donald Trump’s media company. The complaint claims a new conversion ratio of 1.78:1.
Digital World said it believes the difference between its calculation of the previously disclosed conversion ratio of 1.34:1 and ARC’s now claimed ratio of 1.78:1 results from ARC improperly taking into account in its calculation currently outstanding derivative securities of Digital World neither issued in connection with the closing of the merger nor in a financing transaction in connection with the business combination, as well as securities issuable to TMTG, in each case, contrary to the terms of the Digital World charter.
The SPAC warned in a regulatory filing that the cases could further dealy or prevent completion of the deal with TMTG.
Digital World has a March 22 meeting on the calendar for shareholders to vote on the merger with
Trump’s company. If the deal ever closes, it could net the former president more than $3 billion, although his shares are subject to a six-month lockup.
Separately, the SPAC said it deployed another extension on the closing deadline, from March 8 to June 8. The current charter allows extensions up to September.
Meanwhile, earlier this week Digital World disclosed that the co-founders of Trump’s media company filed a lawsuit against the ex-president and TMTG, claiming that Trump and other leaders had schemed to deprive them of a stake in the company that could be worth hundreds of millions of dollars.
Digital World’s stock was down nearly 6.7% in mid-morning trading and has fallen more than 20% in the last two days. Read more.
