Dive Brief:
- Digital World Acquisition (DWAC), the blank-check company planning to merge with an online media venture created by former President Donald Trump, disclosed that it received subpoenas from a federal grand jury. Company shares plunged.
- Digital World on June 16 “became aware that a federal grand jury in the Southern District of New York has issued subpoenas to each member” of its board of directors regarding due diligence toward Trump Media and documents demanded by the Securities and Exchange Commission (SEC) investigators earlier in June. On Friday, Digital World “received a grand jury subpoena with substantially similar requests,” the company said in an 8-K filing posted Monday.
- Digital World, a special purpose acquisition company (SPAC), and Trump Media & Technology Group in October announced a merger and the launch of a social network led by Trump. After the announcement, shares in Digital World rocketed within days from less than $10 to as high as $175 in intraday trading. On Monday, the shares fell 10% to $25.16.
Dive Insight:
The recent subpoenas, along with investigations by the SEC and Justice Department, may delay or prevent the planned merger between Digital World and Trump Media, Digital World said.
Federal investigators also sought communications between Digital World and Rocket One Capital, an investment firm, Digital World said, adding that Bruce Garelick, Rocket One’s chief strategy officer, resigned as a director as of June 22.
Trump was banned from Facebook, Twitter and YouTube after Jan. 6, 2021, rioting at the U.S. Capitol by insurrectionists opposed to the results of the November 2020 presidential election. Trump used the social media networks to spread unsubstantiated claims of voting fraud.
The merger planned to back a new social media channel for the former president called Truth Social. Trump Media in December announced that Devin Nunes would serve as chief executive. Nunes, a California Republican and Trump ally, took the job in January after resigning from the U.S. House.
“Trump Media & Technology Group’s mission is to create a rival to the liberal media consortium and fight back against the ‘Big Tech’ companies of Silicon Valley,” according to the October announcement by Trump and Digital World. The new business said it planned to begin operating during the first quarter of this year.
Digital World said in December that the SEC during the prior month requested documents relating to meetings by its board, “policies and procedures relating to trading, the identification of banking, telephone and email addresses, the identities of certain investors and certain documents and communications between” Digital World and Trump Media.
Sen. Elizabeth Warren, D-Mass., in November called on SEC Chair Gary Gensler to investigate Digital World, saying she was concerned that Chief Executive Officer Patrick Orlando may have held talks with Trump as early as May 2021 without disclosing them to investors.
“DWAC’s failure to disclose these talks during the process appears to be an omission of material information necessary for both early institutional investors and retail investors in the SPAC’s public offering,” Warren said.
Reports of potential wrongdoing “provide an opportunity for the SEC to follow through on its commitment to investigate wrongdoing and fraud in the SPAC space,” she said.
Digital World did not respond to emails requesting comment.
“We encourage — and will cooperate with — oversight that supports the SEC's important mission of protecting retail investors,” Trump Media said Monday in a statement following Digital World’s 8-K filing.
