Because Of Course: Trump's SPAC Deal May Have Broken The Law

from the on-brand dept

If you thought that Trump's new Truth Social website's potential legal problems with its apparent failure to abide by the license on the open source code it seems to be using would be the worst legal problems facing the site, well, you underestimated The Donald. There's been plenty of talk about the SPAC deal that valued the company at billions of dollars through one of those reverse merger IPOs. But, now the NY Times is reporting that the way the deal was done may have violated securities laws. So on brand.

To get his deal done, Mr. Trump ventured into an unregulated and sometimes shadowy corner of Wall Street, working with an unlikely cast of characters: the former “Apprentice” contestants, a small Chinese investment firm and a little-known Miami banker named Patrick Orlando.

Mr. Orlando had been discussing a deal with Mr. Trump since at least March, according to people familiar with the talks and a confidential investor presentation reviewed by The New York Times. That was well before his SPAC, Digital World Acquisition, made its debut on the Nasdaq stock exchange last month. In doing so, Mr. Orlando’s SPAC may have skirted securities laws and stock exchange rules, lawyers said.

SPACs sell their shares to investors through an initial public offering and then find a private company with which to merge. Because SPACs are empty vessels, stock exchanges allow them to list their shares without disclosing much financial information. But that creates opportunities for SPACs to serve as backdoor vehicles for companies to go public without receiving the kind of investor scrutiny they would in a traditional listing. To prevent that, SPACs aren’t supposed to have a merger planned at the time of their I.P.O.

Ooops.

And it gets worse:

Another issue is that Digital World’s securities filings repeatedly stated that the company and its executives had not engaged in any “substantive discussions, directly or indirectly,” with a target company — even though Mr. Orlando had been in discussions with Mr. Trump.

Given the politically fraught nature of a deal with Mr. Trump, securities lawyers said that Digital World’s lack of disclosure about those conversations could be considered an omission of “material information.”

You don't say.

Of course, given all this, how much do you want to bet that it would be Orlando on the hook for this, rather than Trump? Either way, the NY Times has more details suggesting that, despite Digital World insisting that it didn't have any acquisition deals in place, everyone in Trump world was blabbering on about the SPAC deal they had set to go.

In early July, Phillip Juhan, a former financial analyst who had also been an executive at a bankrupt fitness company, was introducing himself to people as Trump Media’s chief financial officer. He said the company was in an “exclusive agreement” with a SPAC, according to one of the people.

So now the question is, which is going to be more of a problem for Trump's new operation? The Software Freedom Conservancy (SFC) or the SEC?

Hide this

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

Filed Under: donald trump, patrick orlando, sec, spac
Companies: digital world acquisition, tmtg, truth social


Reader Comments

Subscribe: RSS

View by: Time | Thread


  • identicon
    Anonymous Coward, 1 Nov 2021 @ 12:17pm

    The fact a company with $300 million felt it necessary to steal free software, pretty much says all that needs to be said.

    reply to this | link to this | view in chronology ]

    • icon
      PaulT (profile), 1 Nov 2021 @ 4:07pm

      Re:

      Companies worth millions would still employ literal slave labour if they could get away with it (and sometimes do). They're not going to have much of a problem if the dev they got to work on this project cut corners by copying and pasting some code. If they got caught ripping off rich people however...

      reply to this | link to this | view in chronology ]

    • icon
      Lostinlodos (profile), 3 Nov 2021 @ 11:44am

      Re:

      Well, they didn’t steal it. Did they? Assuming they used free software, you can’t steal what is free.

      That’s like putting stuff on the curb and posting free but only if you were born on feb 29th. Then getting up in arms when someone born on March 1st takes it.

      What they may have done is violate a software licence. Not theft.

      reply to this | link to this | view in chronology ]

  • identicon
    Glen, 1 Nov 2021 @ 12:17pm

    "Of course, given all this, how much do you want to bet that it would be Orlando on the hook for this, rather than Trump?"

    When they coined the phrase "The Teflon Don", I don't think it would have represented this.

    reply to this | link to this | view in chronology ]

  • identicon
    David, 1 Nov 2021 @ 12:40pm

    Expect the usual litany

    So now the question is, which is going to be more of a problem for Trump's new operation? The Software Freedom Conservancy (SFC) or the SEC?

    Either way it will be big state and radical leftist liberals on a political witch hunt against a successful businessman.

    Never mind that it would actually be liberals who argue against regulation. Never mind that this kind of SEC violation is not a political act. And don't get me started about "successful busnessman".

    reply to this | link to this | view in chronology ]

    • icon
      Rico R. (profile), 1 Nov 2021 @ 1:55pm

      Re: More pro-Trump trolls spewing nonsense!

      …radical leftist liberals…

      As opposed to what… radical leftist conservatives?

      And don’t get me started on how many “successful businessmen” had a brief yet tumultuous political career as a one-term, twice impeached former President who stoked a violent insurrection just because he couldn’t get over the fact that he lost a free and fair election!

      reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 1 Nov 2021 @ 1:27pm

    Just to fill out the run...

    Next up on Trump World: conflict with the Strategic Growth Council of California, the Stanford Humanities Center, and the [SIC] (though there may be some error with that last...)

    reply to this | link to this | view in chronology ]

  • icon
    That One Guy (profile), 1 Nov 2021 @ 1:31pm

    Other than anyone and everyone

    Who could have seen that coming, the platform launched by someone who believes that rules are for other people ignored even more rules in the form of laws.

    At this point I fully expect the usual response, 'fake news', 'the libs have it out for me', and most importantly of all 'Give Me Money!'

    reply to this | link to this | view in chronology ]

    • icon
      Stephen T. Stone (profile), 1 Nov 2021 @ 3:34pm

      I’m sure someone will soon arrive to defend Trump’s bullshit with full-throated sincerity…assuming he doesn’t get lost, that is.

      reply to this | link to this | view in chronology ]

      • icon
        Lostinlodos (profile), 3 Nov 2021 @ 11:46am

        Re:

        …aren’t supposed to have a merger planned at the time of their I.P.O..

        But not prohibited from…

        The SEC will have to review it. And they will decide.

        Until then it’s hearsay. Not fact.

        reply to this | link to this | view in chronology ]

        • icon
          Scary Devil Monastery (profile), 4 Nov 2021 @ 1:43am

          Re: Re:

          "Until then it’s hearsay. Not fact."

          True enough.

          However, both the richly documented history of the primary agent involved and the circumstances surrounding that SPAC adds a lot of context.

          Someone stating that person X ate their neighbor right out of the blue with no corroboration and someone stating that Hannibal Lecter ate his neighbor...those are both hearsay but one of these is a lot more plausible than the other. Particularly so if Dr. Lecter had been seen carrying zip ties, rope, black plastic bags and an odd assortment of condiments through the neighbors back door.

          reply to this | link to this | view in chronology ]

  • identicon
    Scote, 1 Nov 2021 @ 1:46pm

    "So now the question is, which is going to be more of a problem for Trump's new operation? The Software Freedom Conservancy (SFC) or the SEC? "

    I'm gonna say the SFC, because Trump has a long history of avoiding meaningful regulatory actions by government. He's gotten pass after pass after pass. He should have been criminally prosecuted for so many crimes, but hasn't been, and I don't really expect that to change.

    reply to this | link to this | view in chronology ]

  • icon
    That Anonymous Coward (profile), 1 Nov 2021 @ 2:08pm

    They ignored him trying to overthrow the government... does anyone honestly think he has any fear of the government?

    All it takes is a few words and his faithful, well those not in ICU's dying of deworming, will turn out with weapons and declare war.
    And half of the government will try to downplay the event while wondering if they were supportive enough to land a position in the Trump Monarchy.

    reply to this | link to this | view in chronology ]

    • icon
      Kent (profile), 1 Nov 2021 @ 8:44pm

      Re:

      This. Exactly.

      reply to this | link to this | view in chronology ]

    • icon
      Scary Devil Monastery (profile), 2 Nov 2021 @ 2:22am

      Re:

      I'd advise googling "My dark prediction for the 2024 US presidential elections" by Bill Maher.

      Trump has been busy replacing every part of the state machinery which failed him in 2020. Next time around those republican poll watchers, those republican governors, those republican electors...any part of that party which had to bend to election law and their own conscience...won't be there. Instead there'll be those who get installed 2022 where it's currently expected the republicans will be taking back a lot of lost ground.

      Jan 6 was Trump's beer hall coup. Next time around won't be as ineffective.

      The one saving grace right now is that those republicans supporting the coup from their office in congress are all busy throwing their base under the bus to rid themselves of federal charges. That'll at least spike the wheels of the next coup attempt.

      reply to this | link to this | view in chronology ]

  • icon
    jimb (profile), 1 Nov 2021 @ 3:14pm

    of -course- it's a scam...

    Any prudent investor who is considering putting out significant sums of money probably should know better than to buy a 'pig in a poke'. So I can't see why -anyone- would put money into a SPAC up front, without knowing who they are going to merge into. And any prudent investor would, had they known this was a Trump company, have done due diligence (or even a small bit if Googling...) which would have turned up Trump's 'record' with returns for outside investors. There's a reason why Trump's "corporate empire" is a private company... but leaving that aside, those fools who did pony up money, not knowing the destination, and now discover that this enterprise carries Trump's name (bad enough) or will have Trump involved in it's management (far, far worse!) should sell out to gullible Cult of Trump fools as soon as possible. This is all a scam, and I have to wonder how many of the shares on the market now were grifted to Trump and are now being converted to cash in his pockets before the world catches on.

    reply to this | link to this | view in chronology ]

    • icon
      Scary Devil Monastery (profile), 2 Nov 2021 @ 2:28am

      Re: of -course- it's a scam...

      "Any prudent investor who is considering putting out significant sums of money probably should know better than to buy a 'pig in a poke'."

      "Prudent" does not seem to be a word applicable to the republican base to whom endangering themselves and their families by not getting vaccinated against the current pandemic has become a statement of loyalty.

      First, these are the people gullible enough to fall for the hogwash peddled by an infamous con man who spent 40 years turning the business empire he inherited from his father into such a scandal-riddled bankrupt mess he ended up unable to get any bank to extend him a loan - except that one time the russian state bank saw fit to give Mr. Putin's good friend benefit of doubt, that is.

      Secondly these are also people willing to shoot themselves in their own crotch if it means some bleeding-heart liberal ends up inconvenienced over it.

      As long as Trump can say "The liberals will hate this" his base will spend the lunch money of their own children even if they know it means they're throwing that money down the toilet.

      reply to this | link to this | view in chronology ]

    • icon
      Tanner Andrews (profile), 2 Nov 2021 @ 4:15am

      Re: of -course- it's a scam...

      So I can't see why -anyone- would put money into a SPAC up front,

      The idea is the same as getting in early on IPOs. However, with a SPAC, you presume that the folks running it will do some diligence before choosing the company with which to merge. You buy a SPAC and do not have to do much work researching up-coming IPOs because the management does the work for you. With a SPAC, you get in at the initial $10 price.

      Here, the initial SPAC investors got a good bump in the price when the reverse merger occured. In this case, I think the $10 share price went up into the $40s, so anyone buying the pig-in-a-poke has a good profit opportunity.

      Sure, there may be people who buy now or who hang on, expecting profits from the operations. I am not sure what the basis for their optimism might be, but there could be some sort of business plan that involves making money other than by stock manipulation.

      reply to this | link to this | view in chronology ]

      • icon
        DB (profile), 2 Nov 2021 @ 11:28am

        Re: Re: of -course- it's a scam...

        To clarify: a SPAC generally does have a specific merger/acquisition target when it goes IPO. But it must truthfully disclose the interactions and the status of negotiations, and specifically any terms that have been negotiated.

        If negotiations have progressed to terms, then the full range of disclosures and requirements (e.g. audited financials) apply to the acquisition target. Which, of course, is what a SPAC is usually trying to avoid.

        From that point of view, a SPAC should be a bad investment. It's a company formed to do an acquisition. Its very reason for existence is to do a deal. The company being acquired knows this and should be able to negotiate extremely favorable terms. Any competitor can come in and make an offer just under the best terms that the SPAC can offer, and the SPAC pretty much has to top that offer.

        Also a new SPAC should rationally be trading at a bare premium to par value or investment holdings. If it's trading at a significant premium, there should always be the chance that a newer SPAC could be formed that raises slightly more cash to outbid the first SPAC, while costing the shareholders less money.

        reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 1 Nov 2021 @ 3:53pm

    I still think that at the end of the day, he'll evade direct prosecution for all this junk and they'll get him on tax fraud.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 1 Nov 2021 @ 4:53pm

    Those who think the law will depend on whether you're liberal or conservative will be disappointed to learn it depends on whether you're rich or poor. And yes, having many millions of dollars worth of borrowed money wrested from the grip of people you declared bankruptcy against, or scammed in obvious frauds, does count as being rich.

    reply to this | link to this | view in chronology ]

  • identicon
    Arijirija, 1 Nov 2021 @ 6:54pm

    Shurely it's now in the jurisdiction of the baby-eating Bishop of Bath and Welles? With the red-hot poker?

    If this sort of shenanigan had been going on in Europe, we'd be hearing scoffing comments about "Old Europe" from the usual suspects(tm); if it was in the Peoples Republic of China, we'd be hearing about the PRC not having mastered the basics of the rule of law, etc; if it had taken place in Russia, we'd be hearing about the ruin the Russian oligarchy is making of that fair land. I can't even begin to start on just what would be said about India, or that subcontinent's other nations, or South East Asia, the Pacific, the Caribbean, Latin America, Africa, the Middle East or Central Asia ...

    But no, this is happening in the good ol' United States of America. where you can expect billionaires (real and imaginary) to act in bad faith, without any reaction or consequences ...

    reply to this | link to this | view in chronology ]

    • identicon
      David, 2 Nov 2021 @ 2:30am

      Re:

      But no, this is happening in the good ol' United States of America. where you can expect billionaires (real and imaginary) to act in bad faith, without any reaction or consequences ...

      No consequences? He'll make a lot of money.

      reply to this | link to this | view in chronology ]


Add Your Comment

Have a Techdirt Account? Sign in now. Want one? Register here



Subscribe to the Techdirt Daily newsletter




Comment Options:

  • Use markdown. Use plain text.
  • Make this the First Word or Last Word. No thanks. (get credits or sign in to see balance)    
  • Remember name/email/url (set a cookie)

Close

Add A Reply

Have a Techdirt Account? Sign in now. Want one? Register here



Subscribe to the Techdirt Daily newsletter




Comment Options:

  • Use markdown. Use plain text.
  • Make this the First Word or Last Word. No thanks. (get credits or sign in to see balance)    
  • Remember name/email/url (set a cookie)

Follow Techdirt
Essential Reading
Techdirt Deals
Report this ad  |  Hide Techdirt ads
Techdirt Insider Discord

The latest chatter on the Techdirt Insider Discord channel...

Loading...
Recent Stories

This site, like most other sites on the web, uses cookies. For more information, see our privacy policy. Got it
Close

Email This

This feature is only available to registered users. Register or sign in to use it.