What happened
Shares of Digital World Acquisition (DWAC) climbed 34% in July, according to data provided by S&P Global Market Intelligence, after the special purpose acquisition company (SPAC) aiming to take former president Donald Trump's social media company public settled fraud charges with the Securities and Exchange Commission (SEC).
So what
The entirety of the SPAC merger vehicle's gains came on July 21, when shares soared more than 40% following the settlement with the SEC.
A filing by the agency had revealed that company executives were found to have held "extensive SPAC merger discussions with [Trump Media & Technology Group] several months before filing the paperwork to go public in late 2021." That contradicted Digital World's statements that it had not solicited a specific merger target prior to filing for its own IPO, a practice prohibited by the SEC.
As such, Digital World Acquisition has been ordered to pay an $18 million civil fine within 14 days of successfully completing its merger with Trump Media & Technology Group. But the SEC has agreed to forgo the penalty if that merger has not been completed by Jan. 1, 2025, and assuming Digital World dissolves and returns money held in trust to investors.
And note that the SPAC is currently staring down its own deadline of Sept. 8, 2023, to complete the merger.
Now what
While Digital World has settled the fraud charges with the SEC, it's not entirely out of the woods yet.
In May, it told investors it would need to restate its 2022 financial results after identifying errors related to the accounting of certain expenses. Earlier this week, however, shares fell nearly 10% after a new SEC filing revealed that its auditor, Marcum, abruptly resigned before completing that restatement.
Digital World executives also pointed out that Marcum had failed to adhere to "requisite audit procedures" that could have found the errors earlier, and noted Marcum was facing its own $13 million fine from the SEC to settle charges of "systemic quality control failures."
In any case, unless Digital World Acquisition can secure an extension at ameeting on Aug. 17, it seems unlikely the SPAC will be able to complete its planned merger with Trump Media & Technology Group by its Sept. 8 deadline, as previously planned.
If the merger fails, at least investors will see their money returned. But it would obviously be bad news for those hoping to see Trump Media & Technology Group operate as its own publicly traded company.