The Securities & Exchange Commission today announced settled fraud charges against Digital World Acquisition Corporation (DWAC), a special purpose acquisition company (SPAC), for making material misrepresentations in forms filed with the SEC as part of DWAC’s initial public offering & proposed merger with Trump Media & Technology Group Corp. (TMTG). The Commission finds that DWAC misled investors & the SEC by failing to disclose that it had formulated a plan to acquire & was pursuing the acquisition of TMTG prior to DWAC’s IPO.

The purpose of a SPAC is to identify & acquire an operating business. As such, steps taken by a SPAC in furtherance of a particular acquisition are important to investors. According to the SEC’s order, DWAC filed an amended Form S-1 in support of its IPO in early September 2021 that stated that neither DWAC nor its officers & directors had had any discussions with any potential target companies prior to the IPO. But, as found in the SEC’s order, dating back to February 2021, an individual who would later become DWAC’s CEO & Board Chairman, & others involved with DWAC, had extensive SPAC merger discussions with TMTG. The SEC’s order further finds that, while DWAC’s CEO & Chairman initially pursued these discussions with TMTG on behalf of another SPAC, he created a plan in the spring & summer of 2021 to potentially use DWAC to pursue a merger with TMTG & used this plan to solicit certain pre-IPO investors. The order also finds that DWAC failed to disclose that the CEO had a potential conflict of interest based on an agreement he had signed with TMTG. As a result, DWAC’s amended Form S-1 was materially false & misleading.

The SEC’s order further states that, in a later Form S-4 filed with the Commission following the announcement of the proposed merger with TMTG, DWAC mischaracterized & omitted information about the history of its interactions with TMTG. 

“DWAC failed to disclose its discussions with TMTG & failed to disclose a material conflict of interest of its CEO & Chairman,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “In the context of a SPAC – a ‘blank-check’ entity without business operations – these disclosure failures are particularly problematic because investors focus on factors such as the SPAC’s management team & potential merger targets when making financial decisions.”

The SEC’s order finds that DWAC violated the antifraud provisions of the federal securities laws. DWAC agreed to a cease-&-desist order & to pay an $18 million penalty in the event it closes a merger transaction. It also agreed to undertake that, should DWAC file an amended Form S-4, any such Form S-4 will be materially complete & accurate & consistent with the findings in the SEC’s order.

The SEC’s investigation was conducted by Andrew McFall, David Bennett, & Darren Boerner of the Market Abuse Unit & Lindsay S. Moilanen of the New York Regional Office. The case was supervised by Joseph Sansone of the Market Abuse Unit & Thomas P. Smith, Jr. of the New York Regional Office.