Politics - News Analysis

Trump May Have Violated Securities Laws to Pay for His Already Troubled Social Media Platform

What's new? It's another in a long line of secret handshakes in cigar smoke-filled rooms.

Alright, kiddos, bear with me on this one, because it gets a little wonky. You’re about to learn about a dirty trick used by the ultra-rich to finance their pet projects. Misuse of it actually caused the Securities and Exchange Commission to create a new rule governing the practice.

Donald Trump still found a way to break that rule.

A Special Purpose Acquisition Company, or SPAC, is a fake company. I know that sounds weird, but it has no products or services outside of just raising money through an initial public offering of shares of a private company to the public.

The SPAC then finds a company to merge with, and now the real company, the one that makes or does something, has value according to whatever the IPO reaches. The money raised from selling the brand new stock is sometimes used to actually make the product that the real company is responsible for.

So imagine if I made up a new stock, sold it for ten bucks a share even though there’s nothing behind it, then merged with Widgets, Inc. Suddenly, not only is Widgets, Inc. worth ten bucks a share, but they have ten bucks times however many shares you sold to use to build widgets.

If that seems shady to you, you’re not alone. Why not just build the widget, then sell shares of your already-existent widget company?

It turns out the primary purpose for using a SPAC to get a company on the market is to avoid the kind of scrutiny that investors might subject them to before giving them any money.

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To prevent people from using SPACs that way, the SEC made a rule that you can’t already be planning a merger with a specific company before your IPO — otherwise, you should just be putting that company up for shares to the public and skipping the SPAC altogether.

In other words, a SPAC is a “blank check.” If you already know what the check is for, you should be putting that right on it.

The former president just pulled off a major victory for Trump Media & Technology Group, the platform he’s using to launch his new social networking site “Truth Social,” by using a blank check company called Digital World Acquisitions. They merged earlier this month, avoiding investor scrutiny and allowing Trump to raise money without investors having known they were investing in a Trump company.

Gosh, I wonder why he might have wanted to avoid people knowing that.

But it turns out that Trump was already discussing the merger with Digital World earlier this year. That means that the SPAC knew in advance which company they would be merging with, and continued on with the “blind” deal as though they didn’t.

We’re sure Trump was fine with that, but we’ll find out what the SEC thinks about it.

Andrew Simpson
meet the author

Andrew is a dark blue speck in deep red Southwestern Arizona, writing with the conviction of 17 years at the keyboard and too much politics to even stand. When not furiously stabbing the keys on breaking news stories, he writes poetry, prose, essays, haiku, lectures, stories for grief therapy, wedding ceremonies, detailed instructions on making doughnuts from canned biscuit dough (more sugar than cinnamon — duh), and equations to determine the airspeed velocity of an unladen swallow. A wife, three kids, and a grandson round out the story, and in his spare time, Andrew loves to think about how nice it would be to have spare time.

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