Trump Media Merges with SPAC In Wake of Enforcement Action
A special purpose acquisition company or SPAC is typically formed with the purpose of effecting a merger. Before SPACs were known as such – they are a relatively recent phenomenon — essentially the same vehicle was known as blank check company. The reason was because they had no business. – the vehicle was empty or blank. Stated differently, they were typically just empty shells with listed securities waiting to engage in a merger transaction with another firm and then move forward as a public company. Since transactions with SPACs often lack the kind of protections for investors that are available in a standard merger, the entities have come under scrutiny from the Commission.
In February 2021, Patrick Orlando, on behalf of SPAC A had discussions with Trump Media and Technology Group Corp. regarding a merger. During the Spring of 2021 Mr. Orlando planned, and eventually completed, a deal with Trump Media for Digital World Acquisition Corp. or DWAC, an entity of which he was CEO and controlled.
Later in the year Mr. Orlando executed Forms S-1 which represented that DWAC had not selected any merger target or engaged in any substantive discussions with a merger target. The Forms S-1 were filed with the Commission.
In early September of the same year, DWAC completed an IPO. The company raised over $287 million from investors. An amended Form S-1 was filed on August 31, 2021, signed by Mr. Orland. The Forms represented that neither DWAC nor its officers and directors had any discussions or contacts with any potential target companies prior to the IPO. The Forms also represented that DWAC had not selected any specific business combination target.
The next month – October 2021 – DWAC announced an agreement to merge with Trump Media. Following the announcement the share price of DWAC’s stock increased over 400%. Mr. Orlando signed the filings made with the SEC. Those Forms failed to include material facts regarding the discussions that proceeded the execution of the merger agreement. The Commission then instituted settled cease-and-desist proceedings which named as Respondent DWAC. The Order alleged violations of Securities Act Section 17(a)(2) and Exchange Act Section 10(b). The remedies include a penalty of $18 million.
The merger of DWAC and Trump Media closed on March 25, 2024. The surviving entity renamed itself Trump Media & Technology Group Corp. Prior to that filing, DWAC filed an amended Form S-4. It made disclosures consistent with the findings in the Commission’s published order instituting settled cease-and-desist proceedings.
The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The complaint is pending. SEC v. Orlando, Civil Action No. 1:24-cv-2097 (D.D.C. filed July 17, 2024); See also Lit. Rel. No. 26051 (July 19, 2024).