SEC Probe Could Cause Hiccups in Progress of Digital World Acquisition

Among the most controversial market moments in 2021 was the still-in-progress special purpose acquisition company (SPAC) merger of Digital World Acquisition (NASDAQ:DWAC) and Trump Media & Technology Group (TMTG). Folks who bought DWAC stock at the right time profited handsomely, while other traders lost their proverbial shirts.

DWAC stock: An image of wooden blocks that say SPAC over a series of one dollar bills.
Source: Dmitry Demidovich/

Reportedly, TMTG will launch Truth Social, a conservative social-media platform that says it will emphasize First Amendment rights. There’s big money at stake here, as TMTG should have close to $300 million in capital once the merger with Digital World Acquisition closes.

As InvestorPlace contributor Faizan Farooque explained, TMTG will have to compete with some of the biggest names in media. However, as we’ll see, the company is expected to have an ally in the social-media tech space.

On the other hand, there are risks involved with an investment in Digital World Acquisition and TMTG. One such risk is a government probe, which could potentially cause major problems for the shareholders.

A Closer Look at DWAC Stock

Prior to the Oct. 20, 2021, TMTG merger announcement, DWAC stock traded near $10. That’s not unusual for a pre-announcement SPAC stock.

But then, something unusual did happen. Soon after the SPAC merger disclosure, the Digital World Acquisition share price surged 357% in a single day.

Some folks might assume that Reddit traders were involved in that run-up. They might be right, though it’s a difficult hypothesis to confirm.

In any case, DWAC stock maintained the bullish momentum briefly, peaking on Oct. 22 at $175. After a sharp drawdown, the stock eventually settled near $50.

Lately, the stock has been stuck near that $50 level. It’s as if the market is waiting to see what happens next. There are some developments afoot, though, which might provide some crucial clues.

Trump Is Ready to Rumble

Like him or hate him, there’s no denying that former President Donald Trump knows how to stay in the headlines.

Not long ago, Trump issued a statement that’s likely to have a profound impact on Truth Social and its stakeholders.

“I have selected the Rumble Cloud to serve as a critical backbone for TMTG infrastructure,” Trump reportedly announced.

Presumably, he’s referring to the cloud service provided by conservative-leaning Canadian YouTube rival Rumble. Apparently, TMTG is negotiating with Rumble to provide a platform for a subscription on-demand video service to be called TMTG+.

Rumble will handle the online streaming video service for Truth Social, so that would relieve TMTG of having to source its own tech experts. Whether people would be willing to pay to view Truth Social’s content remains to be seen.

A Potential Problem

As I suggested earlier, anything Trump touches is likely to end up in the headlines. However, this isn’t always a good thing.

Just recently, The Washington Post broke a story that Chinese investment advisory firm Arc Capital has been the target of investigations conducted by U.S. federal securities regulators.

It was reported that the U.S. Securities and Exchange Commission (SEC) has accused Arc Capital of deceiving investors about the scope of its operations, as well as the locations of the businesses and the identities of the people behind them.

So, here’s the Trump connection: Arc Capital helped create Digital World Acquisition.

In other words, the SEC is investigating the business that helped to create the blank-check company that’s bringing TMTG to the stock market. It’s an indirect problem for TMTG and Truth Social, but a problem nonetheless.

SEC spokesman Kevin Callahan declined to comment on Arc Capital, so there’s no telling how this issue will be resolved.

The Bottom Line

If you’re planning to hold DWAC stock, be prepared for share-price volatility. Also, brace yourself for the possibility of what I like to call “headline shock.”

From Reddit to Rumble and Arc Capital, it sometimes seems like the story of Digital World Acquisition is too complicated to follow. Yet, investors must stay informed in order to succeed in the long run.

At the end of the day, if you’re going to stay the course with DWAC stock, you have to have at least one thing in common with Trump: you can’t be afraid to court controversy, as this is the only thing that’s assured.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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