Shares of Digital World Acquisition Corp. (DWAC 0.35%) slumped nearly 12% as of 2:38 p.m. ET today following a recent short report from a hedge fund. DWAC is the special-purpose acquisition company (SPAC) taking the parent company of the Donald Trump-backed social media platform Truth Social public.
The hedge fund Kerrisdale Capital Management took to Twitter yesterday to announce that the fund is shorting DWAC. Kerrisdale's main thesis is that DWAC will not receive regulatory approval from the Securities and Exchange Commission (SEC) to merge with Trump Media & Technology Group (TMTG).
DWAC announced last year that it would take TMTG public, sending shares soaring on the belief that a Trump-backed social media platform could challenge the mainstream social media giants. Shares at one point had skyrocketed from $10 to nearly $100 and currently trade at about $41 per share.
But DWAC revealed in December that regulators, including the SEC, which has been closely monitoring SPACs and their legitimacy, were investigating DWAC for how it communicated with TMTG prior to announcing the merger.
Kerrisdale tweeted the following:
The SEC has been handed a prime opp to send a message to the industry. Not only is $DWAC and TMTG high-profile, but the deal involves a repeat offender. $DWAC's sponsor is an obscure Chinese firm that has seen three of its shell companies killed by the SEC in the past.
In addition to the regulatory scrutiny, Truth Social has struggled since its recent launch, with delays, technical issues, resignations from high-level executives, and a significant decrease in downloads.
In recent days, Truth Social CEO Devin Nunes, a former longtime member of the U.S. House of Representatives, wrote on one of his social media platforms that the platform is beginning a series of upgrades that should improve the network.
But considering all of the previous issues and the regulatory challenges brought up by Kerrisdale Capital Management, I will certainly not be going anywhere near this stock.