SEC Charges Digital World SPAC for Material Misrepresentations to Investors

The Securities and 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 and proposed merger with Trump Media & Technology Group Corp. (TMTG). The Commission finds that DWAC misled investors and the SEC by failing to disclose that it had formulated a plan to acquire and was pursuing the acquisition of TMTG prior to DWAC’s IPO.

The purpose of a SPAC is to identify and 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 and 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 and Board Chairman, and others involved with DWAC, had extensive SPAC merger discussions with TMTG. The SEC’s order further finds that, while DWAC’s CEO and Chairman initially pursued these discussions with TMTG on behalf of another SPAC, he created a plan in the spring and summer of 2021 to potentially use DWAC to pursue a merger with TMTG and 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 and 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 and omitted information about the history of its interactions with TMTG. 

“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. “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.”

The SEC’s order finds that DWAC violated the antifraud provisions of the federal securities laws. DWAC agreed to a cease-and-desist order and 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 and accurate and consistent with the findings in the SEC’s order.

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