It’s not unusual for a business to list risks it faces in a filing with the Securities and Exchange Commission (SEC). It is, however, unusual for that list to cover more than 30 pages.
Digital World Acquisition, however, has pulled back the curtain on its proposed reverse merger with Trump’s Truth Social app, creating Trump Media and Technology Group (TMTG). And there are plenty of things that could go wrong.
In over 31 pages, 5 of which are related specifically to Trump, the company warns potential investors of the dangers the company faces with its reliance on Trump and his popularity.
“While TMTG believes there is sufficient demand for a true free speech platform, the image, reputation, popularity, and talent of its Chairman, President Trump will be important factors to its success,” the filing reads. “If President Trump becomes less popular or there are further controversies that damage his credibility or the desire of people to use a platform associated with him, and from which he will derive financial benefit, TMTG’s results of operations could be adversely affected.”
That might not be the worst problem, though. The company notes a report from an independent registered accounting firm that “expresses substantial doubt about its ability to continue as a ‘going concern.'” The company notes the worst-case scenario would be the SEC not allowing the merger to occur. (The regulatory agency announced it had launched a probe last December.)
Assuming the SEC does bless the merger, though, there are plenty of other potential Trump-associated land mines. Here are some the company called out:
- Trump discontinuing or limiting his relationship with TMTG.
- The numerous lawsuits against the former president proving too distracting or forcing him to resign from the board.
- The SEC, as it did in 2002, could issue a cease-and-desist order. (In 2002, the agency came after Trump Hotels and Casino Resorts for violations of the anti-fraud provisions of the Exchange Act.)
- Trump’s long history of companies that have filed for bankruptcy and/or failed
- Trump himself. “Neither the personal nor political conduct of President Trump, even if such conduct could negatively reflect on TMTG’s reputation or brand or be considered offensive, dishonest, illegal, immoral, or unethical, or otherwise harmful to TMTG’s brand or reputation, shall be considered a breach of the license agreement,” the filing reads.
- Increased risk of hackers and/or advertiser harassment because of Trump’s involvement.
- Third parties, ranging from Web-hosting companies to investors, not wanting to be associated with a Trump-run company.
As has been widely reported, Trump’s biggest handcuff in the deal is that he is required to make any social media post to Truth Social first—and then wait at least six hours before posting it on another social site. Trump could get around that to a degree, however, posting things related to “political messaging, political fundraising or get-out-the-vote efforts” on any social media site from a personal account without the cool-down period, according to the filing.
That aside, he has virtually unlimited freedom with what he wants to do with TMTG. He currently holds 46.8% of the voting power and could get more. That would allow him to, among other things, single-handedly decide whether to accept or reject a buyout, regardless of shareholder sentiment. He could also replace the whole board if he wished.
According to the filing, “President Trump has the ability to significantly influence, and may depending on the level of redemptions may control, the outcome of all matters requiring stockholder approval, including the election and removal of the Combined Entity’s entire board of directors and any merger, consolidation or sale of all or substantially all of the Combined Entity’s assets.”
The voluminous concerns listed by Digital World aren’t scaring off all investors. The stock jumped 6% after the S-4 was filed and was trading at around $45 a share as of midday Tuesday. And in the past five days, shares have gained 12%.