September 7, 2022

SPACs: Still Looking Bleak

Reuters reported yesterday that Digital World Acquisition Corp., the SPAC that’s attempting to merge with Donald Trump’s social media venture, has so far failed to get the approval from 65% of shareholders that’s necessary to extend the deadline to complete the deal.

Management is once again postponing the vote tally, this time until Thursday – and if that doesn’t pan out, the sponsors will sink in more of their own funds in order to extend the life of the SPAC by three months. The deal has been on hold while the SEC and others investigate how it came about – here’s more detail from the article:

Digital World has disclosed that the SEC, the Financial Industry Regulatory Authority and federal prosecutors have been investigating the deal with TMTG, though the exact scope of the probes is unclear.

The information sought by regulators includes Digital World documents on due diligence of potential targets other than TMTG, relationships between Digital World and other entities, meetings of Digital World’s board, policies and procedures relating to trading, and the identities of certain investors, Digital World has said.

Per the playbook, the media company blames political bias for the regulatory scrutiny of this transaction. But what that statement misses is that the SEC and others are searching for ways to kill SPAC deals regardless of who’s involved. In a separate enforcement action announced yesterday, the Commission charged a New-York based investment adviser with failing to disclose conflicts of interest relating to SPAC sponsor compensation and failing to timely file a Schedule 13D. The investment adviser agreed to a censure and a $1.5 million penalty to settle the charges.

Liz Dunshee