The Securities and Exchange announced settled fraud charges against Digital World Acquisition (DWAC) for making material misrepresentations in forms filed with the SEC as part of DWAC’s initial public offering and proposed merger with Trump Media & Technology Group. The commission said that Digital World misled investors and the SEC by failing to disclose that it had formulated a plan and was already pursuing the acquisition of TMTG prior to the SPAC’s IPO.
Digital World will pay an $18 million penalty if it completes the deal, the SEC said. As part of the settlement, DWAC also affirmed that future filings with the regulator would be “materially complete and accurate.”
Digital World shares were up more than 62% at $21.68 in mid-morning trading, following the SEC’s announcement.
The SPAC is facing a Sept. 8 deadline for completing the merger, though it contends that it may extend the runway by an additional 12 months — which Trump’s media company reportedly disputes.
DWAC filed an amended Form S-1 in support of its IPO in early September 2021 that stated that neither DWAC nor its officers and directors had had any discussions with any potential target companies prior to the IPO. But, as found in the SEC’s order, dating back to February 2021, an individual who would later become DWAC’s CEO and Board Chairman, and others involved with DWAC, had extensive SPAC merger discussions with TMTG.
Original CEO and Chairman Patrick Orlando was fired in March.
“DWAC failed to disclose its discussions with TMTG and failed to disclose a material conflict of interest of its CEO and Chairman,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “In the context of a SPAC – a ‘blank-check’ entity without business operations – these disclosure failures are particularly problematic because investors focus on factors such as the SPAC’s management team and potential merger targets when making financial decisions.”
Three investors pleaded not guilty yesterday to insider trading related to Digital World and its deal with Trump Media. Michael and Gerald Shvartsman, and Bruce Garelick were charged last month with trading illegally in Digital World before it announced its plan to combine with Trump Media & Technology Group in October 2021. A trial in that case is scheduled for next March.
