Shares of Digital World Acquisition (NASDAQ:DWAC) are down more than 5% after Kerrisdale Capital released a 27-page short report on the special purpose acquisition company (SPAC). Kerrisdale is a hedge fund with over $1.8 billion in assets under management.

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In the report, Kerrisdale characterizes DWAC stock as the “poster child for some of the worst abuses the investment vehicle has spawned.” The investment vehicle here refers to SPACs. Specifically, the hedge fund accuses Digital World of misleading statements, disregarding U.S. Securities and Exchange Commission (SEC) rules, and having a discombobulated management team.

The SEC recently announced a proposal to crack down on SPAC companies for misleading statements. As part of the proposal, SPAC companies would be required to disclose more details to investors. These details includes conflicts of interests, financial projections and dilution. Kerrisdale believes that DWAC provides “textbook examples” of this type of misconduct.

Therefore, with that in mind, let’s jump into the details of the short report.

12 Things to Know as Kerrisdale Bets Against DWAC Stock

1. Kerrisdale values Digital World at $10. This is based on its cash balance. Furthermore, the hedge fund disclosed that it is short shares of DWAC stock.
2. Additionally, Kerrisdale alleges that Digital World’s acquisition target, Trump Media & Technology Group (TMTG), does not have the “infrastructure necessary to function as a public company.”
3. As of now, TMTG has “limited operating history, one marginally functioning product, and no revenue.”
4. Accordingly, Kerrisdale believes there is a “significant risk” that Digital World does not have enough material information to submit a S-4 form to the SEC. The SEC requires an S-4 form for companies seeking to enact a merger or acquisition.
5. Within six weeks of DWAC’s initial public offering (IPO), the SPAC announced that it would merge with TMTG. Kerrisdale does not believe that DWAC conducted the necessary due diligence in six weeks’ time that is needed for an S-4 form.
6. It has been six months since the merger announcement, and there is still no S-4 form to be found.
7. Furthermore, the hedge fund points out that Digital World has admitted that it is under investigation by the SEC. The investigation is related to statements made in its S-1 filing.
8. Kerrisdale highlights that TMTG’s forecast states that it will generate $1.8 billion of revenue in the next four years. To do this, it plans on “capturing 50% of Twitter’s monetizable daily active users and 40% of the Disney+ subscriber base.”
9. Meanwhile, executives at Digital World are fleeing the company. On April 4, Truth Social’s chief technology officer and product officer and TMTG’s chief legal officer quit their positions following the launch of the social media platform.
10. ARC Group-related entities sponsor DWAC. In 2015 and 2016, ARC Capital, an entity of ARC Group, tried to initiate IPOs for “at least three companies.”
11. The SEC concluded that the companies “lacked even basic indicia of credibility or legitimacy.”
12. By 2017, the SEC had obtained stop orders to suspend the company’s registration statements. In short, “the SEC killed the three companies.”

On the date of publication, Eddie Pan 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.