What happened

Shares of the shell company Digital World Acquisition (DWAC) fell nearly 45% in the month of June after the special purpose acquisition company (SPAC) disclosed that previously announced investigations have been expanded by subpoenas.

Digital World in the later part of last year announced its intention to merge with and take public Trump Media & Technology Group (TMTG), which is the parent company of the social media platform backed by Donald Trump called Truth Social.

So what

Upon the announcement of Truth Social, shares of the SPAC exploded, rising all the way to more than $94 per share last October on the belief that an alternative social media platform with Trump's following could potentially challenge mainstream social media platforms.

But the deal, which has yet to be completed, has been marred by regulatory concerns that some believe could threaten the merger from being completed, which has significantly brought down the stock price.

The Securities and Exchange Commission (SEC) has been asking for documents and other information about the SPAC's communications with other acquisition candidates before announcing the deal with TMTG. The SEC is also inquiring about one of the SPAC's sponsors and its underwriter and financial advisor.

In June, the company disclosed in a filing that the U.S. Attorney's Office for the Southern District of New York has been subpoenaing members of its board of directors. Furthermore, the SPAC said the court is looking for information about a venture capital company tied to it called Rocket One Capital and that the SPAC itself has received a subpoena.

Now what

All of these subpoenas, the grand jury, and the ongoing investigations continue to throw uncertainty behind completing the merger so TMTG can actually go public.

In fact, the hedge fund Kerrisdale Capital Management has specifically said in the past that it is shorting the stock because it doesn't think the deal will go through.

Kerrisdale has pointed out that one of Digital World's sponsors is a repeat offender and that this would be an opportunity for the SEC to essentially throw the book at a high-profile SPAC and make an example to the entire industry, although SPAC activity has all but dried up at this point.

I am staying away from Digital World Acquisition due to the chance that the merger doesn't go through. Even if it does, I would also be worried about the business because based on reports, it doesn't look like Truth Social is anywhere close to hitting the early projections for users that it made when the deal was announced.