In a significant development, the Securities and Exchange Commission (SEC) has announced the resolution of fraud charges against Digital World Acquisition Corporation (DWAC), a special purpose acquisition company (SPAC), for misleading investors and the SEC itself. The charges are related to material misrepresentations made by DWAC in forms filed with the SEC during its initial public offering and proposed merger with Trump Media & Technology Group Corp. (TMTG).
According to the SEC’s findings, DWAC failed to disclose crucial information to investors, specifically that it had already formulated a plan to acquire TMTG and was actively pursuing the acquisition even before its IPO. SPACs are required to be transparent about their actions and potential merger targets as investors rely on this information to make informed financial decisions.
The SEC’s order reveals that DWAC filed an amended Form S-1 to support its IPO, which falsely claimed that neither DWAC nor its officers and directors had engaged in discussions with any potential target companies before the IPO. However, it was discovered that as early as February 2021, an individual who later became DWAC’s CEO and Board Chairman, along with others associated with the company, had extensive discussions about a SPAC merger with TMTG. Furthermore, the SEC found that the CEO had developed a plan in the spring and summer of 2021 to potentially merge DWAC with TMTG, using this undisclosed plan to attract certain pre-IPO investors. Additionally, DWAC failed to disclose the CEO’s potential conflict of interest arising from an agreement signed with TMTG.
The SEC also found that in a subsequent Form S-4 filed after announcing the proposed merger with TMTG, DWAC mischaracterized and omitted key information regarding its prior interactions with TMTG.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, commented on the matter, stating, “In the context of a SPAC – a ‘blank-check’ entity without business operations – 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.”
As a result of its findings, the SEC ordered DWAC to cease and desist its fraudulent practices and pay an $18 million penalty in the event the merger with TMTG is finalized. DWAC has also committed to ensuring the accuracy and completeness of any future amended Form S-4 filings.
The investigation was led by the SEC’s Market Abuse Unit and the New York Regional Office, and the case was supervised by the Market Abuse Unit and the New York Regional Office as well.