Shares of Trump Spac soar after deal to settle SEC fraud charges

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Shares in the blank-cheque company planning to take Donald Trump’s media business public have risen sharply after the Securities and Exchange Commission announced a deal to settle fraud charges stemming from its initial public offering in 2021.

Digital World Acquisition Company will pay an $18mn SEC penalty if the deal goes ahead. The contingent payment, announced on Thursday, resolves an investigation into what the regulator called “material misrepresentations” that violated the antifraud provisions of federal securities laws.

DWAC became a listed company in September 2021, without telling investors that it had already had extensive discussions to acquire Trump Media and Technology Group, which operates the Truth Social platform, according to the SEC.

The company also “failed to disclose a material conflict of interest of its CEO and chairman,” added SEC enforcement chief Gurbir Grewal. The DWAC chief was personally on the hook to pay TMTG $1mn if the former president’s media venture failed to find a merger partner, according to the SEC.

Special-purpose acquisition companies such as DWAC typically list on the stock market with the aim of later merging with an established company attracted by the chance to achieve a rapid public listing.

DWAC briefly became one of the best-performing stocks after it announced its planned merger with TMTG in October 2021.

But it has since struggled to keep the deal alive, as multiple regulatory investigations have compounded other setbacks caused by a need to raise cash and difficulty securing the necessary approvals from the company’s fragmented roster of retail shareholders.

The SEC began probing the deal as early as December 2021, securities filings show.

Separately, federal prosecutors last month brought charges in connection with alleged insider trading against Bruce Garelick, who once sat on DWAC’s board of directors. Garelick has pleaded not guilty. DWAC has not been accused of any wrongdoing in connection with the investigation by prosecutors.

Investors sent DWAC shares sharply higher on Friday as they digested news of an SEC deal that could remove a serious obstacle to the TMTG merger, although at $19.53, the price is still 80 per cent below its March 2022 peak.

DWAC is required to complete the transaction by September or hand back its cash to shareholders. The company asked investors to extend that deadline by a year. But TMTG has informed the company that it is only bound by the terms of the merger agreement until the current deadline, according to a regulatory filing.