Earlier this week, news broke that the Securities and Exchange Commission is investigating whether Donald Trump’s nascent media company and the special purpose acquisition company, or SPAC, with which it’s planning to merge violated rules by hiding their plans from the public. On Friday, news broke that the Financial Industry Regulatory Authority, or FINRA, is investigating whether insider trading of the SPAC’s “warrants” took place. In one sense this news is easy to understand: Donald Trump is being accused of potential involvement in a scam. On the other hand, what? Donald Trump has a streaming content company? SPAC warrants? Something called a PIPE? What’s going on? We’re here to answer those questions.
Donald Trump has a media company?
Not really. As documented in humorous detail by Bloomberg’s Matt Levine, what happened is that on Oct. 20, something called the Digital World Acquisition Corp. announced that it plans to merge with something called the Trump Media & Technology Group. DWAC is a publicly traded SPAC, which we’ll get to later; TMTG, however, is not something that anyone had ever heard of before, did not (and still does not) sell any products or offer any services, and, aside from having a spokeswoman who worked at the White House and a chairman (Trump himself), did not have any known employees. In November, however, it did introduce a PowerPoint-style pitch for potential investors that is labeled as being presented by EF Hutton.
What’s the pitch?
The presentation claims that TMTG is going to run a right-wing-friendly Twitter-like social media platform called Truth and produce “non-woke” (its words) streaming content including “unscripted TV series” (i.e., reality shows), documentaries, and sports events (!). Again, though, the company hasn’t yet launched any of those things despite having claimed that it was going to introduce an early version of Truth Social in November. The presentation includes a bizarre page purporting to identify 30 of the company’s “Technology Team” employees, but lists them only by their first name and last initial, as if they’re characters in a SimCity-style video game; Axios was unable to find any actual people on LinkedIn who say they work for TMTG.
Hang on, EF Hutton? That’s a real business, right?
Sort of. The original EF Hutton was a well-known brokerage—along the lines of, say, Charles Schwab—founded in 1904. In the 1980s, however, it was busted for operating a systematic scam in which branches intentionally overdrafted their accounts in order to take advantage of the way banks handled the overdrafts. Hutton went into decline, and the rights to its brand name ended up getting kicked around the financial services industry for decades. In 2014, there was an effort to revive it as an independent Ohio-based company with interests in, among other things, cryptocurrency and a retirement-savings social-media service called Meggalife. That version of the company suspended operations in 2019 amid stories about various unpaid debts, but the brand name was relaunched yet again this year by an investment bank called Kingswood Capital Markets, which purchased the rights to do so by, among other things, giving the original E.F. Hutton’s grandson Stanley the right to invest in some SPACs. (To be clear, Slate is not suggesting Kingswood Capital Markets has ever been involved in unethical or illegal practices. It is, however, funny that the brand it decided to revive before doing a business deal with Donald Trump was last seen in the national news because of fraud.)
SPACs. There are SPACs in this news article.
Please become the 1,000th journalist to explain what a SPAC is. Perhaps this time it will stick.
A SPAC is a public company that doesn’t do anything when it’s created, but raises money through the stock market with an explicit promise to its investors that it will, within a certain time period, use the money it’s raised to merge with an up-and-coming private company that does do something. Through such a merger, the private company becomes a publicly traded company without doing its own IPO. In theory, this arrangement gives regular people the opportunity to effectively invest in private companies before they go public. It also offers the private companies the chance to raise money and become publicly traded without spending as much money on bankers and lawyers and disclosing as much about their business operations, as they’d have to in a traditional IPO. In practice, as you might guess just from reading the preceding sentence, this seems to mean a lot of companies that aren’t sustainable enough to go public are going public.
So what is DWAC, the SPAC that is going to merge with Trump’s company that possibly doesn’t exist?
DWAC is a SPAC that lists something called the ARC Group as an investor and adviser.
Does ARC Group have a history of Trump-esque charlatanry?
Big time. As the Times writes, the SEC sanctioned ARC in 2017 for what it described as “material misstatements” in filings related to three companies it was involved with. The Times furthermore reports that ARC marketing materials have claimed the company’s “strategic partners” include “JPMorgan Chase, Goldman Sachs Group, the law firm Skadden Arps, and the accounting firms PwC and KPMG” but that “representatives of those companies all said they had no relationship with ARC.”
And what is it that’s going on with this particular deal that the SEC is investigating?
According to the Times, the CEO of DWAC participated in an April video call with representatives of Trump’s quasi-company. But then, in May, DWAC attested in a public filing that it had not had discussions with any potential merger targets. No one has been formally accused of wrongdoing in the matter, and a lawyer representing TMTG told the Times that the April video call involved discussions between TMTG and a different SPAC that DWAC’s CEO is also involved with.
OK … PIPE?
Trump and DWAC say they’ve also raised commitments for a billion dollars of investments through a private investment in public equity, or PIPE, arrangement. This is a normal thing that just means large private investors have committed to buying stock in the eventual public TMTG at a specifically arranged price. The part that gives it a special Trump flavor is that no one at DWAC or TMTG has disclosed who the investors are. They could be, for example, entities drawn from Trump’s robust international network of organized crime figures and corrupt government officials. Indeed, it would be a bit surprising if they weren’t!
And also FINRA?
FINRA is a private organization for brokers and markets that performs self-regulation. (It is overseen by the SEC.) According to the Times, FINRA is looking into the trading of “warrants” that took place in October before DWAC announced its plans to merge with TMTG. Stock warrants give their holder the right to buy a stock for a given price at a given time, and DWAC at one point issued warrants for the rights to buy DWAC stock for $11.50 30 days after it closed its merger, whose target and timeline was at that point TBD. (Recall that the whole point of SPACs is that they go public before they know whom they’re going to merge with.) What FINRA apparently noticed is that a week after DWAC and Trump began discussing the possibility that TMTG would become DWAC’s merger target, but before plans were announced publicly, trading in DWAC warrants suddenly jumped from a volume of 350,000-ish a day to volumes of a million a day and more. This suggests someone might have been loading up on DWAC warrants on the basis of insider information, which is a “big-time no-no” in securities law. Again, though, no one has been accused of anything yet.
Wait, wasn’t there also something with California Rep. Devin Nunes?
Yes. Nunes was one of Trump’s main defenders in Congress during the various congressional investigations of the unethical things that Trump did while president. He is probably most famous for having made a big deal, in March 2017, about purportedly discovering evidence that the Obama administration had conducted inappropriate surveillance of Trump and his associates. Part of the PR blitz associated with this purported discovery involved Nunes breathlessly going to the White House to “brief” Trump about it. It turned out, however, that Nunes’ “evidence” consisted of mischaracterized documents that he had been given by the White House in the first place. Anyway, he announced last week that he is resigning from Congress to become the CEO of TMTG.
Does Devin Nunes have any prior experience in the technology or media sectors?
The Nunes family is in the business of dairy farming.
Ah. And how large of a company does TMTG project itself to have by 2026, according to its investor presentation?
TMTG predicts that, under the leadership of dairy farmer Devin Nunes, it will have 81 million social media users and 40 million paid streaming subscribers (roughly as many as Paramount+) by 2026.
In summary, DWAC is advised and backed financially by people with a history of making things up, and may have behaved unethically in the course of brokering a merger to create a public company whose chairman is Donald Trump. The only public company Trump ran previously ended up going bankrupt more than once, and his new company doesn’t actually do or make anything yet. He has an unbelievably long and well-documented history of ripping off investors and customers; in fact, few phenomena in human history are as thoroughly documented as Donald Trump’s unreliability as a business partner. The merger deal is, furthermore, being arranged by an investment bank that just renamed itself after the Charles Schwab of overdraft fraud. How is DWAC’s stock price doing amid these revelations?
DWAC’s stock was, at the time of writing, worth $58.90 a share, more than five times as much as it was before the TMTG merger plan was announced.
There is no God.
I do not endorse this conclusion but cannot argue against its suitability as an explanation for the relevant events.