Dive Brief:

• The Securities and Exchange Commission announced the settlement of fraud charges against Digital World Acquisition Corporation, a special purpose acquisition company planning to merge with an online media venture created by former President Donald Trump.

• Digital World violated the antifraud provisions of the federal securities laws by making material misrepresentations in forms filed with the SEC as part of the company’s initial public offering and proposed merger with Trump Media & Technology Group, according to a commission order released Thursday. Prior to Digital World’s IPO, it misled investors and the SEC by failing to disclose that it was pursuing the acquisition of Trump Media, the agency found.

• As part of the settlement, Digital World agreed to a cease-and-desist order and to pay an $18 million penalty in the event it closes the merger transaction. Also, in the event that Digital World files an amended Form S-4, it must be “materially complete and accurate” and consistent with findings laid out in the SEC’s order.

Dive Insight:

SPACs, or blank-check businesses, are publicly traded entities created for the purpose of forming a merger or acquisition. 

The SEC’s investigation of Digital World’s proposed merger with Trump Media had been a major hurdle for the deal, which was announced in October 2021. The Justice Department has been pursuing a similar probe.

Digital World CEO Eric Swider hailed the SEC settlement as an “important milestone” that clears the path for the commission to review the company’s upcoming registration statement related to the proposed Trump Media acquisition.

“Subject to further SEC review of our future filings related to the merger, we are eager to move forward the consummation of the business combination,” Swider said in a press release.

He said Digital World has also filed a proxy statement seeking shareholders' support for a year-long extension of the company’s liquidation date from Sept. 8, 2023. If approved, the extension will provide additional time to complete the merger deal, he said.

Swider was named permanent CEO of Digital World earlier this month after being appointed to the position on an interim basis in March. He succeeded Patrick Orlando, who was terminated. In a Securities and Exchange Commission filing at the time, Digital World said its board decided to establish a new management team due to “unprecedented headwinds” facing the company.

In April, the company announced additional leadership changes, including the appointment of Katherine Chiles as finance chief.

According to the SEC’s order, Digital World filed an amended Form S-1 in support of its IPO in early September 2021 stating that neither it nor its officers and directors had had any discussions with potential target companies prior to the IPO. However, dating back to February 2021, individuals involved with the company, including the person who would eventually become its CEO and board chairman, had extensive SPAC merger discussions with Trump Media, the SEC said.

Digital World also neglected to disclose that its CEO had a potential conflict of interest stemming from a letter of intent that made him personally liable to pay a $1 million break-up fee if the company or a substitute entity failed to acquire Trump Media, according to the order. In addition, following the announcement of the proposed merger, the SPAC mischaracterized and omitted information about the history of its interactions with Trump Media, it said.

“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,” Gurbir Grewal, director of the SEC’s Division of Enforcement, said in a Thursday press release.