Digital World Acquisition Co., a blank-check company, has found itself entangled in a web of legal trouble with the Securities and Exchange Commission over its proposed merger with media giant Trump Media and Technology Group.
The SEC's investigation revealed that DWAC had misled investors and failed to disclose crucial information during its September 2021 initial public offering. The commission accused DWAC of engaging in extensive discussions with TMTG before going public, without notifying its shareholders of these ongoing negotiations. Such misleading disclosures violated federal securities laws and raised concerns about conflicts of interest involving DWAC's CEO and chairman.
“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 S. Grewal, director of the SEC’s division of enforcement, said in a statement.
As part of the settlement, DWAC agreed to pay a substantial penalty of $18 million to the SEC, a move aimed at resolving the fraud charges. However, this agreement raises questions about the future of the much-anticipated merger between DWAC and TMTG, which operates the popular Truth Social platform, which is known as the former president's primary platform for connecting with his supporters online.
The road to the merger has been fraught with hurdles for DWAC, compounded by multiple regulatory investigations and the need to secure approval from its diverse roster of retail shareholders. The SEC initiated its investigation as early as December 2021, creating uncertainty and volatility in DWAC's stock price.
Adding to DWAC's troubles, federal prosecutors recently charged Bruce Garelick, a former board member, with alleged insider trading. Although DWAC itself has not been implicated in the investigation, these legal battles have further complicated the merger's prospects.
DWAC's stock performance has been rollercoaster-like, with a peak in March 2022 followed by a significant 80% decline. The company is under pressure to finalize the merger by September or face the obligation to return cash to its shareholders.
In a bid to buy more time, DWAC sought approval from its investors to extend the deadline by a year. However, TMTG's response remains ambiguous, as it seems to be bound only by the current deadline specified in the merger agreement.
The fate of the merger now hangs in the balance, and DWAC must navigate through these turbulent legal waters to make the deal with TMTG a reality. The future of Truth Social and its potential impact on the media landscape is uncertain until these legal matters are resolved.
Mayer Brown, GWG's law firm, agreed to pay $30 million to resolve conflict of interest claims.
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