What happened

Shares of special purpose acquisition company (SPAC) Digital World Acquisition Corp (DWAC) were trading roughly 15% lower as of 1:40 p.m. ET Tuesday as investors continued to doubt whether the shell company will be able to complete its planned merger.

Last October, Digital World announced a plan to merge with and bring public Trump Media and Technology Group (TMTG), the parent company of Truth Social, the social media platform backed by former President Donald Trump. That news sent shares of the shell company surging. Since then, however, the company and the deal have run into a host of regulatory issues.

So what 

Back in April, hedge fund Kerrisdale Capital announced that it had shorted Digital World stock on the belief that the SPAC would not be able to obtain regulatory approval to complete its merger.

Since then, numerous regulatory agencies, including the Securities and Exchange Commission, have requested information from the company, while federal prosecutors have subpoenaed members of Digital World's board of directors. 

The investigations have to do with how much communication Digital World had with TMTG prior to Digital World going public -- communications that may have broken securities laws.

Digital World needs to complete its merger with TMTG by Thursday or extend the deadline, which would require approval from at least 65% of shareholders. Reuters, citing anonymous sources, reported Monday that Digital World had failed to wrangle enough votes from among its shareholders to approve the extension.

Then, early Tuesday, Digital World executives adjourned their meeting just minutes after it started, saying they would continue to count votes to see if they had shareholder approval for the deadline. The results of the vote will be made public Thursday, according to CNBC.

Now what

If Digital World cannot get approval for an extension from its shareholders, management may have to liquidate the SPAC and return the money it raised to shareholders. However, management does have the option to extend the deadline by up to six months even without shareholder approval.

However, six months may not be enough time for regulators to finish their various investigations and approve the merger. Considering the substantial risk here, I would recommend avoiding the stock.