The Securities and Exchange Commission announced settled fraud charges against Digital World Acquisition Corporation (DWAC), a special purpose acquisition company (SPAC), 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 Corp. (TMTG). The Commission finds that DWAC misled investors and the SEC by failing to disclose that it had formulated a plan to acquire and was pursuing the acquisition of TMTG prior to DWAC’s IPO.
According to the SEC, the purpose of a SPAC is to acquire an operating business. As such, steps were taken by a SPAC in furtherance of a particular acquisition are important to investors. According to the SEC’s order, DWAC filed an amended Form S-1 in support of its IPO in early September 2021 that stated that neither DWAC nor its officer 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 the DWAC’s CEO and Board Chairman and others involved with the DWAC, had extensive SPAC merger discussions with TMTG. The SEC’s order further finds that while DWAC’s CEO and Chairman initially pursued these discussions with TMTG on behalf of another SPAC, he created a plan in the spring and summer of 2021 to potentially sue DWAC to propose a merger with TMTG and used this plan to solicit certain pre-IPO investors.
The order also finds that DWAC failed to disclose that the CEO had a potential conflict of interest based on an agreement he had signed with TMTG. As a result, DWAC’s amended Form S-1 was materially false and misleading…
CNBC reported that a SPAC, also known as a blank-check company, is a shell company that debuts on the public market with the stated intent to acquire an existing private company. SPAC’s are often used as a way for private companies to go public without the time-consuming and expensive process of raising money through a traditional initial public offering.
CNN also reported that last month, federal prosecutors arrested three investors charges related to Digital World’s deal with Trump’s media company. According to the indictment, the investors allegedly made more than $22 million by illegally trading on knowledge that DWAC would purchase TMTG – before it was public knowledge.
If I’m understanding this correctly, the DWAC was caught doing things that the SEC considered to be fraud. The fraud charges have been settled. The next step appears to get the acquisition done before whatever deadline they need to meet.