Even after the launch of Truth Social, the problems haven’t stopped for Digital World Acquisition (NASDAQ:DWAC). The blank-check partner of Trump Media & Technology Group (TMTG), DWAC has seen its fair share of turbulence since shocking Wall Street back in October. This week has been no different. Today, shares slipped into the red on news that the U.S. Securities and Exchange Commission (SEC) is issuing new rules for special purpose acquisition companies (SPACs).
This morning, the SEC announced that it was proposing new rules for investigating SPACs. As CNBC reports, these changes would “amend safe harbor rules and leave SPACs open to investor lawsuits for excessively rosy business forecasts.”
DWAC stock has slowly been declining all week. Still, while it was in the red even before the SEC news broke, the declines have certainly sped up since the announcement.
What’s Happening with DWAC Stock?
Of course, these new rules do not target DWAC stock specifically. But it’s also no coincidence that shares fell after the news broke. After all, the SPAC has ignited considerable controversy since partnering with TMTG. Before the end of 2021, it faced investigations from multiple regulatory agencies, including the SEC.
No disciplinary action was taken against the company, but federal probes don’t boost shares. Former President Donald Trump’s record with lawsuits also hasn’t helped the company. To be clear, this doesn’t imply any suspicious activity on the part of DWAC or TMTG. But it is a reason why investors regard the stock with scrutiny. InvestorPlace contributor Larry Ramer argues its risk-reward ratio is no longer favorable.
That may be the least of Digital World’s problems, though. Much of the stock’s early success was in anticipation of the Truth Social launch, but the debut didn’t go well. The Wrap reports that Truth Social is seeing a 93% decrease in signups.
This decrease is likely the biggest force driving DWAC stock down right now. Still, the SEC news isn’t good for shares either. There’s nothing to indicate any illicit behavior from the company, but Digital World’s previous run-ins with regulatory probes work against it. Investors were already skeptical. Now many may jump ship before further problems ensue.
What It Means
The fact that DWAC stock fell today after the rule-change news broke is telling. It signals that investors foresee more problems for the company.
SPACS aren’t falling across the board at the news, however. In fact, CF Acquisition Corp VI (NASDAQ:CFVI) — a fellow Trump trade that often moves in solidarity with Digital World — is in the green today.
Storm clouds were already following DWAC. Now they’re closing in even faster.
On the date of publication, Samuel O’Brient did not hold (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 InvestorPlace.com Publishing Guidelines.
