US regulators are looking into the deal that would bring former president Donald Trump’s new social media company to the stock market, one that has attracted both legions of his fans and people looking to make a quick profit.
The company partnering with Trump Media & Technology Group acknowledged the inquiries in a filing it made with regulators on Monday.
It also gave some financial forecasts for the company, which is hoping to rival Twitter and other platforms that banned Mr Trump, along with Netflix and other streaming video services. It said over the weekend that it has lined up $1 billion in promised investments from a group of unnamed institutional investors.
The regulatory questions focus on the October announcement by Mr Trump’s media venture that it would merge with Digital World Acquisition Corp, which launched on the US stock market three weeks earlier with the sole purpose of finding a privately held company to buy.
DWAC said on Monday that it is cooperating with “the preliminary, fact-finding inquiries” by the Securities and Exchange Commission and the Financial Industry Regulatory Authority.
The SEC early last month requested documents related to meetings of DWAC’s board, trading policies and communications between DWAC and Mr Trump’s media venture, among other things.
According to DWAC, the SEC’s request said the commission’s “investigation does not mean that the SEC has concluded that anyone violated the law or that the SEC has a negative opinion of DWAC or any person, event, or security.”
The SEC could be looking at whether DWAC and Mr Trump’s company had any conversations about a deal before DWAC’s own initial public offering of stock, said Jay Ritter, a professor at the University of Florida who is an expert on IPOs.
DWAC currently holding are a reported $293 million in cash raised through its IPO.
Under rules for these blank-cheque companies, known as special-purpose acquisition companies, or SPACs, they’re not supposed to line up acquisition targets before selling their own shares.
The merger announcement sent DWAC’s stock surging from $9.96 to $94.20 in just two days as Trump supporters and investors looking to make a fast buck bought in. The shares have since pulled back to roughly $43.
Such a lofty price indicates high expectations for Mr Trump’s media venture among at least some investors. In its filing with regulators, DWAC also gave some financial forecasts for the company, which has yet to launch.
The presentation included forecasts that the company’s Truth Social service may have 81 million users by 2026, or nearly 7 million more people than voted for Mr Trump in the 2020 US presidential election.
In five years, Trump Media is forecast to generate nearly $3.7 billion in revenue, according to the filing.
SPACs generally are known for giving very optimistic forecasts about their future growth in presentations to investors.
DWAC was shaky in Monday trading following the filing. It opened with a slight gain before falling to a 3.2 per cent loss.