Gurbirsgrewal
Gurbir S. Grewal, director of the SEC’s Division of Enforcement | U.S. Securities and Exchange Commission/Wikipedia Commons

Grewal: 'DWAC failed to disclose its discussions with TMTG'

On July 20, the U.S. Securities and Exchange Commission announced charges against Digital World Acquisition Corporation (DWAC), a special purpose acquisition company (SPAC), for material misrepresentation to investors. The misrepresentations were made in connection to Digital World’s initial public offering and a proposed merger with Trump Media & Technology Group Corp.

“DWAC failed to disclose its discussions with TMTG and failed to disclose a material conflict of interest of its CEO and Chairman,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, according to a news release from the SEC. “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 and potential merger targets when making financial decisions.” 

According to the release, Digital World Acquisition Corporation (DWAC) has settled fraud charges related to its initial public offering and proposed merger with Trump Media and Technology Group Corporation (TMTG). The SEC found DWAC made material misrepresentations by failing to disclose its pursuit of the TMTG acquisition before the IPO, misleading both investors and the SEC.

The SEC's order revealed DWAC filed an amended Form S-1 supporting its IPO, stating it had not engaged in discussions with potential target companies before the IPO, the release reported. However, the investigation found DWAC's CEO and board chairman, along with others associated with the company, had extensive merger discussions with TMTG dating back to February 2021. 

The CEO had reportedly formulated a plan to potentially merge with TMTG and used it to solicit certain pre-IPO investors, the release said. DWAC also failed to disclose the CEO's potential conflict of interest due to an agreement signed with TMTG, rendering its amended Form S-1 materially false and misleading.

Furthermore, in a later Form S-4 filed after announcing the proposed merger with TMTG, DWAC reportedly mischaracterized and omitted crucial information about its interactions with TMTG. According to the release, the SEC's order determined that DWAC violated the antifraud provisions of federal securities laws. 

As part of the settlement, DWAC agreed to a cease-and-desist order and a penalty of $18 million, payable upon closing a merger transaction, the release reported. It also committed to ensuring that any future amended Form S-4 will be materially complete, accurate and consistent with the findings in the SEC's order.