Patrick Orlando is trying to get Donald Trump’s attention. With a critical shareholder vote fast approaching, the CEO of the beleaguered Digital World Acquisition Corp.—a so-called SPAC that is supposed to merge with the former president’s social media company—needs all the help he can get. In recent weeks, Orlando has repeatedly tagged Trump on TruthSocial in an effort to salvage a deal that could be worth hundreds of millions of dollars. But he hasn’t gotten much of a response.
Orlando and DWAC are teetering on the edge of a cliff. Under the rules of the SPAC’s formation, the company had just 12 months to merge with Trump Media & Technology Group; otherwise, DWAC is supposed to dissolve itself and return its money to shareholders. But the merger has been held up by an ongoing Securities and Exchange Commission investigation, and technically, the deadline has already passed. Orlando has staved off the immediate threat by unilaterally extending the deadline three months, but he needs 65 percent of shareholders in the company to approve a longer extension. Monday is the next, and possibly last, time to hold a shareholder’s meeting and get those votes—three previous attempts have fallen short.
Despite Orlando’s apparent pleas for Trump’s assistance, the former president hasn’t said much—or at least not much that’s helpful. In mid-September, Trump Media & Technology Group—the parent company of TruthSocial—issued a press release threatening a lawsuit against the SEC, but that isn’t viewed as a serious threat. At a rally in Michigan last weekend, Trump did rail against the SEC, accusing it of participating in a partisan conspiracy to thwart his efforts to take TMTG public. But he didn’t say what Orlando needed him to say about the upcoming DWAC vote. In fact, despite his anger at the SEC, Trump sounded like he was perfectly happy to walk away from the deal and seek alternate sources of funding for his nascent media empire.
“The company that wants to finance TruthSocial—you know about TruthSocial, it’s hot as a pistol, it’s hot as a pistol—but this is a finance company, it’s a SPAC, it’s being targeted by the SEC,” Trump told the crowd. “Now look, if they don’t come up with the financing, I’ll have it private. TruthSocial is hot, easy to have it private. You don’t have to go through all this.”
DWAC and many of its shareholders seem to agree with Trump that the deal has fallen prey to a deep-state plot. But many of the problems seem to be of the companies’ own making. TruthSocial has failed to impress and has struggled to amass users. DWAC can’t do anything about that right now—the two corporations haven’t merged yet. In filings with the SEC, moreover, DWAC has acknowledged that the future success of the combined business will be depend on Trump’s own popularity and ability to avoid scandals. Meanwhile, a series of bad choices made by Orlando’s own management team have arguably put the deal in further jeopardy.
Meanwhile, those who stand to get hurt the most are the Trump-supporting retail investors who snapped up DWAC shares last year as the meme stock exploded in value.
SPACs are blank-check companies that are allowed to go public with no purpose or business plan and, therefore, with little disclosure or scrutiny. Once public, the SPAC—short for “special purpose acquisition company”—tries to find a company that does have a real business idea that it can merge with. Ideally, it’s a company that would like to go public but isn’t interested in spending the time and money required to partner with a big Wall Street bank and doesn’t want to face intensive scrutiny from investors and regulators. The Trump Media & Technology Group is a perfect example of that kind of company. With Trump’s history of corporate bankruptcies and unpaid loans—and his increasingly toxic political brand—TMTG would have been a longshot for a traditional IPO sponsored by any of the typical Wall Street firms that shepherd companies through the process.
In theory, SPACs also present an opportunity for ordinary retail investors, who might have a chance to get in on a potentially hot stock earlier than they would with a traditional IPO. And that’s what a lot of DWAC investors thought as the share price shot up from $10 to as high as $175 following the announcement last year that it would merge with Trump’s TruthSocial.
But DWAC quickly ran into trouble. Outside of the effect that’s Trump name and product quality have on the whole project, DWAC is facing two primary problems—both of which seem to have been avoidable.
When a SPAC first goes public, it’s required to set a deadline for when it will get its merger done—it can’t hold onto investor’s money forever without completing the deal. SPACs get to decide for themselves what that deadline will be, but if they don’t meet it, they have to shut themselves down and give investors their money back. In DWAC’s case, the founders gave themselves just one year to pull off a merger, which SPAC experts say is relatively short.
“When DWAC was launched you could make your own rules—as long as it was within 36 months. They chose 12 months which is pretty aggressive,” says Usha Rodrigues, a law professor at the University of Georgia. “It’s not unheard of, but it’s optimistic.”
It’s a timeline that left DWAC with no margin for error, Rodrigues says—no opportunity to work around any potential hiccups in the process. And DWAC could be running out of time. Failure to complete a merger by the final deadline, which may come as early as Monday, would force the company to dissolve itself.
The second big problem for DWAC is that the SEC requires SPACS to truly be blank slates. SPAC founders are not allowed to start planning a merger before the SPAC itself goes public. But last year, a former insider—who said he’d been unfairly pushed out of DWAC—filed a lawsuit alleging that talks between DWAC’s founders and Trump’s camp had indeed occurred before they were supposed to.
Since then, DWAC has been under the cloud of an SEC probe. In corporate filings starting late last year, DWAC disclosed to investors that it was cooperating with the SEC and other investigators. DWAC has denied wrongdoing, but there’s no reason to think the investigation will be over anytime soon.
And as long as the investigation continues, the merger between DWAC and Trump’s company can’t happen. If DWAC’s founders had given themselves three years to complete their merger, that might not be a problem. But it is.
“They’re government lawyers,” says Adam Pritchard, a University of Michigan law professor. “They don’t get paid for wrapping things up quickly. They have no incentive to do so.”
DWAC’s retail investors—many of whom seem to be fanatical Trump supporters—have turned their ire on the SEC, alleging some sort of liberal plot to punish the former president and his backers. On Reddit, Twitter, and TruthSocial, these investors have been rallying around the hashtag #DWACtheSEC and laying out a complex theory of how Democrats are targeting them. In a recent SEC filing, DWAC executives included contact information to send complaints to the commission’s ombudsman office, and investors have launched a Change.org petition demanding an end to the probe.
“One of the core duties of the SEC is to protect retail investors. However, everything is being done in your power to delay this business merger with a garbage investigation that has yet to turn up ANY evidence of wrongdoing,” the petition reads. “Because if (sic) this, the SEC is harming retail investors that believe in the future of this company and in the future of American freedoms.”
“This information should be conveyed to the top person at the SEC in charge of acquisitions,” the petition adds.
In his speech last weekend, Trump himself meandered through what sounded like a half-hearted recitation of one particular conspiracy theory, which ties the SEC investigation back to Peter Strzok, the fired FBI agent who led the bureau’s Trump-Russia investigation. Trump also blamed SEC chairman Gary Gensler, who served as CFO of Hillary Clinton’s 2016 campaign.
Pritchard says that as much as Trump and his fans want to believe they’ve been targeted for political purposes, the allegations of improper coordination require SEC attention. Ensuring complete separation between the two parties to the deal is essential in order to keep SPACs honest, he said.
“That is a very typical basis for starting an investigation,” he added.
The clever thing about accusing the SEC of political bias, though, is that the agency will never come out and directly respond, because it’s not supposed to talk about ongoing investigations.
“It’s unsupported, but it’s unfalsifiable,” explains Pritchard.
At the same time, Pritchard and other securities lawyers told Mother Jones, spamming the SEC ombudsman office with complaints probably won’t have an effect on the investigation. It’s just not how the process works.
“It would seem in almost all cases to be counter productive,” says Rodrigues.
Yet another problem for DWAC is that it’s simply not a good time to be a SPAC. It may be impossible to show that there is (or isn’t) an SEC vendetta against DWAC and Trump. But according to Pritchard, it’s undoubtedly true that the SEC under Gensler has been on the warpath against SPACs generally. In March, the SEC released proposed rules to overhaul how SPACs are regulated and to clamp down on what they can do.
“With the proposed rules, it’s trying to shut down SPACs,” Pritchard says. “They want companies to use the traditional IPO process, and they’re using this rules release to try and squelch competition to the IPO process, which the SEC heavily regulates and which is the gold standard.”
The proposed rules would add more transparency for everyday SPAC investors—investors like the angry DWAC shareholders on Reddit. This could help minimize the possibility for conflicts of interest and provide clearer information about what will happen to a company’s assets when a merger goes through.
Michael Klausner, an economist and lawyer at Stanford, says the SEC has a lot of legitimate concerns about SPACs that have nothing to do with partisan politics.
“The mystery to me, and I think to others, is how on earth they lasted so long,” says Klausner. “It’s really unbelievable.”
Klausner recently filed lawsuits against the sponsors of several SPACs, accusing them of hiding from regular investors the details of how much money they would ultimately walk away with—according to Klausner, as much as 50 percent of the money invested before a merger can get hoovered up by SPAC sponsors and other insiders.
“From the beginning, a SPAC was a very bad investment for a non-redeeming investor,” he says, referring to investors who buy into a SPAC and hold on to their shares until after a merger.
It’s not just the SEC that is leaning on SPACs right now—the market itself seems uninterested. When DWAC went public in September 2021, investors were still enamored with the idea. But the excitement about SPACs has fallen off a cliff over the past year. In 2021, there were 613 SPAC IPOs. So far this year, there have been just 78. In July, there were none.
Deep-state SEC vendetta or not, the reality for DWAC investors is that the deadline to solve all of this is approaching fast. According to the company’s charter, DWAC had until Sept. 8 to make a deal. When it became clear that wouldn’t work out, the company’s directors called a shareholder’s meeting—and then nothing happened. The question posed to shareholders at the meeting was essentially: Do you want to give us one more year to make this deal happen? Or do you want to just give up and get back $10 a share, which is much less than many of you paid?
On the day of the meeting, Reuters reported that the company had failed to get enough votes. But DWAC executives pushed back, arguing that not enough investors had participated yet and that too many shares were still unvoted to make a final decision. The directors announced they were adjourning the meeting to give shareholders more time to vote. The meeting was called to order again later that week, with the same result—not enough investors casting votes. The meeting will return on Monday, Oct. 10, and in the meantime, company officials are frantically encouraging investors to vote.
None of this makes much sense, Rodrigues says.
“It’s economically irrational not to vote to extend,” she says. If there are investors who don’t like the company, they can sell their shares now at $17 or $18 instead of waiting for the company to collapse and return to them $10.
Rodrigues speculates that many of DWAC’s retail investors—the MAGA diehards who excitedly bought into a hot stock associated with Trump—may not fully comprehend the implications of the vote or are simply unaware that it’s happening. Any big institutional investors would have quickly voted to extend, she says.
“The problem they find themselves in, is they made themselves into a meme stock with retail investors, who are now legitimately unhappy,” he says. “But the SEC, to me, doesn’t seem to be the place to direct their unhappiness.”
So, who is to blame?
Rodrigues and Pritchard both say that for starters, DWAC’s management never should have written themselves such a short deadline. And if retail investors’ enthusiasm for supporting Donald Trump was going to be used to send the share price skyrocketing, DWAC executives should have worked harder to engage those investors to support the company. Pritchard also says the company should have worked to make sure there were no questions of any premature coordination between the Trump camp and DWAC.
Pritchard wouldn’t speculate on how the investigation would turn out. He noted that the SEC’s process gives a company plenty of opportunity to argue that there was no wrongdoing. There very well could be a finding that nothing improper was done. Even if the SEC does decide to pursue the matter further, 90 percent of cases are ultimately settled.
But for the retail investors left holding the bag as the investigation drags on, it may not matter.