Investors are beginning to bail out on Donald Trump’s fledgling Truth Social platform after the September 20th deadline to close the merger deal with the blank check company, Digital World Acquisition Corp. passed – with outflows from the investment in the company running to the tune of $139 million. In a Securities and Exchange Commission filing on Friday, DWAC stated that “Between September 19, 2022, and September 23, 2022, Digital World received termination notices from PIPE Investors representing approximately $138.5 million of the PIPE.”
PIPE (Private Investor in Public Equity) investors are large private investors (such as hedge funds, mutual funds, and other larger institutional investors like investment arms of large corporations) investing money in public equities.
Per the tech media outlet MENAbytes:
‘PIPE deals are often seen in SPAC transactions because sponsors need to raise more money than they get in their IPO to complete the acquisition of companies that are viable for the purpose of the SPAC. These viable companies sometimes cost more than the money SPAC sponsors have in their trust account from the public fund-raising.”
On December 4, 2021, the special purpose acquisition company (SPAC) entered into securities purchase agreements with investors regarding its merger with Donald Trump’s Truth Social’s parent company, Trump Media & Technology Group, for the purchase of up to a million shares at $1000 each to raise a billion dollars.
“Pursuant to the SPAs, each of the PIPE Investors may terminate its respective SPA, among other things, if the closing of the PIPE has not occurred on or prior to September 20, 2022. Additionally, as reported in Digital World’s definitive proxy statement dated August 25, 2022, relating to its special meeting of stockholders, currently adjourned to October 10, 2022, it is possible that the parties will restructure the PIPE or renegotiate such arrangements in view of the PIPE closing conditions, evolving market and regulatory conditions.”
Since the announcement of the proposed merger, both Digital World and Truth Social have been marred by controversy and scrutiny of their controversial deal. The SEC has been investigating the blank check company, a probe that DWAC blames for possibly tanking the deal. In true litigious Trump fashion, Truth Social threatened to sue the SEC – accusing the investment oversight agency of “political bias,” Business Insider reported.
In a filing last week, Trump Media & Technology Group said in a statement released to right-wing media outlet Breitbart News:
“The SEC has stalled its review of our planned merger with DWAC, having failed to act despite DWAC having filed its registration statement more than four months ago. This inexcusable obstruction, which directly contradicts the SEC’s stated mission, is damaging investors and many others who are simply following the rules and trying to expand a successful business. In light of the obvious conflicts of interest among SEC officials and clear indications of political bias, TMTG is now exploring legal action against the SEC. Despite the increasing weaponization and politicization of government agencies, Truth Social will continue its expansion plans, supported by the unprecedented levels of user engagement on the platform.”
The Truth Social app was barred from Google’s app store at the end of August, with the Alphabet-owned search engine making the decision because of the platform’s “breaking rules barring content that incites physical threats and violence,” NDTV reported. TMTG was notified by Google about the decision on August 19th, when a spokesman for the Android Play app store said:
“its app violated Play policies and required “effective systems for moderating user-generated content” in order to be offered on the platform.”
Digital World stock has dropped 90% from a $175 high after announcing the merger – over 30% in the last week alone.
The SPAC company and Truth have faced litigation for failing to pay Truth Social vendors and failed to get the necessary 65% yes vote from investors in the company’s bid to get a one-year extension to complete the deal with TMTG.
Shady from the start — not surprising given Donald Trump’s track record of six bankruptcies and a multitude of civil judgments – it’s even less surprising that investors got cold feet than if the deal were to actually go through. Ex-president Trump is facing criminal and civil charges from local, state, and federal government agencies that have exposed financial improprieties and backroom shenanigans comparable to the New York mob. Perhaps Digital World should see this as a blessing and get out while it can.
Read the filing here.
Follow Ty Ross on Twitter @cooltxchick