Today's biggest U.S. news story involves a merger of Trump Media and Technology Group (which owns Donald Trump's Truth Social) and Digital World Acquisition Corp., which is described as "a publicly-traded blank-check acquisition company." That description might sound fishy to the ears of an average person. But that's not the only foul odor that might be coming from this financial deal, which Digital World shareholders approved this morning. It supposedly will give Trump a much-needed financial boost, and today's story came with this prominent headline at The New York Times (NYT): "Trump Media Merger Provides Trump a Potential Cash Lifeline."
The key word in that headline is "potential" because the deal comes with a number of caveats that could delay any benefit to Trump for at least six months. The NYT is out front with today's coverage, but to my knowledge, the story originated with a report Wednesday (3/19/24) from Donald Watkins, a longtime Alabama attorney who has become a leading voice in online investigative journalism. Watkins wrote under the headline "Securities and Exchange Commission (SEC) Okays Donald Trump's 58 to 64% Ownership of a Publicly Traded Social Media Company, Despite Court Findings of Business Fraud
The words highlighted in blue in the headline are of particular importance, and they make the merger historic for the SEC -- and not in a good way. That's because the SEC apparently ignored all kinds of red flags regarding Donald Trump, his sons (Don jr. and Eric Trump) and their shaky financial standing -- and behavior. And the SEC-fueled merger becomes particularly dubious when you consider that it comes on the heels of Trump's failure to obtain a bond related to his $464-million appeal related to his New York business-fraud case -- and that came after 30 companies turned him down. Here is how Watkins put it in his Wednesday article:
On February 16, 2024, a New York state court found that Donald Trump, Donald Trump, Jr., and Eric Trump schemed for years to defraud banks and insurers by inflating his wealth on financial statements used to secure loans and make deals. The court entered a $454 million civil-fraud judgment against Trump and his sons, who are appealing this ruling.
The day before the much-anticipated court ruling in Donald Trump's case, the U.S. Securities and Exchange Commission approved a merger of Trump Media and Technology Group with Digital World Acquisition Corp., a publicly-traded blank-check acquisition company. Trump's media company owns Truth Social, which he founded after he was banned from Twitter (now known as X) in 2021.
Trump Media's merger deal with Digital World was valued in February at an estimated $10 billion. This valuation was purely speculative.
Digital World’s shareholders were scheduled to vote on the merger deal today, and they gave the go-ahead.
Since its founding in 2021, Truth Social has sustained massive financial losses and a limited base of users (estimated 607,000 monthly users as of July 2023). Trump has 6.61 million followers on Truth Social. Digital World says Truth Social has so far had 8.9 million signups.
Watkins says the merger makes no sense, on multiple grounds. As for that piece of SEC history, it's something the commission should not be proud of, Watkins writes:
The Commission's approval of the merger occurred despite Donald Trump's documented history of filing business bankruptcies – six to be exact -- and stiffing creditors.
The merger was approved while Donald Trump is awaiting state and federal criminal trials in New York, Washington, Atlanta, and Miami on 88 felony charges.
Donald Trump, Jr., who was also found liable of business fraud in the New York civil case, is slated to join the board of directors of the merged entity.
Despite all of these red flags, Donald Trump will own between 58.1% and 69.4% of the combined company.
When Digital World shareholders approved the deal, Trump became the first person in the history of the Securities and Exchange Commission to own a majority interest in a publicly traded company AFTER he was: (a) convicted of repeated acts of civil business fraud in court, (b) indicted by state and federal authorities on 88 felony charges, and (c) involved in six business bankruptcies.
The failed effort to obtain an appeal bond also comes into play, Watkins writes:
The Securities and Exchange Commission is supposed to be the watchdog agency that protects the investing public from fraudsters. It rarely performs this function. Instead, the Commission has become a cleansing agent for crooked Wall Street banks, major utilities like the Southern Company, and soiled businessmen like Donald Trump.
With the Trump Media-Digital World merger deal, the Commission found a pathway to hold its nose and look past Donald Trump’s adjudicated business fraud, four criminal indictments, and six corporate bankruptcies so that Trump and his son could (a) seize control of a public social-media company and (b) save Truth Social from bankruptcy.
The Securities and Exchange Commission is as crooked as the Trumps. No other explanation makes sense for its approval of the Trump Media-Digital World merger deal.
Digital World’s share price closed at $35.57 on Monday -- the same day Trump's lawyers announced that he was unable to post a $464 million appeal bond in his New York civil fraud case. The share price is down from $50.49 in February when the Commission approved the merger.
We now know the highly touted Trump Media-Digital World stock is virtually worthless since it does not provide Donald Trump with the amount of liquidity he needs to post a $464 million appeal bond in his civil fraud case.
Yahoo! News, with original reporting from the Daily Beast, dives into the background of Trump and his murky merger under the headline "Trump Scores Lucrative Media Merger Amid Massive Money Woes." Justin Rohrlich writes:
Truth Social, Donald Trump’s money-hemorrhaging Twitter knockoff, is going public, a move expected to serve as a necessary lifeline to the struggling business while infusing the former president’s personal coffers with billions in desperately needed funds.
On Friday, shareholders of Digital World Acquisition Corporation, a SPAC, or, so-called blank-check company, approved a merger with Trump Media & Technology Group, which has blown through much of its available cash after earning just $1.07 million in revenue during the third quarter of 2023. According to SEC filings, Trump Media generated a paltry $3.38 million in revenue over the first nine months of 2023, booking a $49 million net loss during the same period.
DWAC’s stock was trading at $44 a share prior to the merger announcement, meaning Trump Media, which will begin trading as early as next week under the ticker DJT, could launch with a market cap exceeding $5 billion. Yet, following the announcement, DWAC shares quickly plummeted, with sellers vastly outnumbering buyers, which pared its valuation nearly 10 percent by 11 a.m.
Trump’s own stake in the business, subject to a six-month lockup period during which he cannot sell his shares, may be worth upward of $3 billion on paper. However, the half-year wait means Trump will not be able to pay off his eye-popping legal debts with the just-out-of-reach windfall unless he gets special permission from the merged company’s board of directors to liquidate his position early.
Has the pathway to Trump's merger been smooth sailing? Not even close Rorhrlich writes:
The road to today's deal has been pocked with trouble, getting hamstrung at most every turn by lawsuits and accusations of self-dealing and financial malfeasance. A pair of former contestants on Trump’s NBC reality TV competition, The Apprentice, claimed in a recent lawsuit that the 45th POTUS was attempting to dilute their stake in the company and had tried to get one of them to sign over his shares to Trump’s wife Melania. DWAC and former CEO Patrick Orlando have both sued each other in similarly bitter legal feuds, with DWAC calling the ousted chief exec “reckless and irrational” and Orlando went to court to try and block the planned merger over his own claims of being shortchanged.
Today’s deal gives Truth Social, which was formed by Trump after he was booted off of Twitter, now X, for repeated and flagrant rules violations, a new lease on its young, troubled life. Trump, who will own 58.1 percent of the company, now may see a glimmer of hope in raising sufficient cash to cover a $454 million appeal bond in his New York State civil fraud case. New York Attorney General Letitia James said she is prepared to begin seizing Trump’s properties by Monday, when the deadline to post the bond expires.
At the same time, Truth Social’s user base has shrunk nearly 40 percent year-over-year, and experts say the financials, as they stand now, are highly misleading.
“The stock price is clearly a bubble,” Yale Law School professor Jonathan Macey told CNN. “No rational investor would take the stock at face value, especially if they had to hold it for any length of time.”
In short, the Trump deal emits a stench that is ovverpowering. That suggests the Trumps, their media business, the SEC, and DWAC need to be investigated. New York Attorney General Letitia James might have the courage, and the guts, to take on such a task.
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