Digital World Acquisition Corp (NASDAQ:DWAC) may be about to see things come full circle. The blank-check partner of Trump Media and Technology Group (TMTG), known for its social media platform Truth Social, saw shares fall when it received a subpoena from the Securities and Exchange Commission (SEC) late in 2021. While DWAC stock would ultimately recover, news of the probe didn’t help. Now, months after Truth Social’s launch, shares are falling again on news that the agency has expanded its investigation.
What’s Happening with DWAC Stock
DWAC stock is plunging today after a week of remaining mostly stagnant. Despite a slight rally as markets opened, it reversed direction just as quickly and hasn’t made progress since. As of this writing, it is down more than 15% for the morning and shows no signs of a rebound.
Despite the launch of the Truth Social app, plenty has happened since the probe began that should cause investors to approach DWAC with caution. Let’s take an in-depth look at the stock and its troubled history.
Why It Matters
Senator Elizabeth Warren called for the SEC to investigate Truth Social in November 2021. In her words, it “may have committed securities violations by holding private and undisclosed discussions about the merger as early as May 2021.” When the agency began its investigation, Truth Social claimed to be “cooperating with ‘the preliminary, fact-finding inquiries.'”
Fast-forward six months to today, and a lot has happened since the initial probe. Most investors likely shifted focus to the app’s launch, then to the turbulence it generated for DWAC stock. Most recently, shares popped when Donald Trump posted a rant on Truth Social regarding the current January 6 hearings.
But now, the SEC is seeking more information on TMTG’s merger with DWAC. According to the 8K filing:
“This subpoena seeks additional documents and information with respect to, among other things, communications regarding and due diligence of potential targets other than TMTG, relationships between and among Digital World (and/or certain of Digital World’s officers and directors) and other entities (including ARC Global Investments II LLC.”
News of a regulatory probe never helps boost a stock’s price. But as Seeking Alpha reports, prolonging this investigation could delay the merger, thereby pushing DWAC stock down even more. Truth Social was struggling before this subpoena news, and anything to threaten the business combination could compromise investor confidence even more.
What It Means for DWAC Stock
Investors already had little reason to believe in DWAC stock. Now they have even less. While it is unknown how the results of the probe will effect Truth Social, some investors won’t stick around to find out. They recently saw a glimmer of hope in May 2022 when the company finally filed its S-4 form and shares rose on the news. But events like this are a good reminder of why it is so difficult to trust a company with such a turbulent history.
Even if the SEC turns up nothing incriminating, DWAC will have shed even more of its value by the time it concludes. Investors are still advised to steer clear of this stock that can’t stay stable enough to achieve any real growth.
On the date of publication, Samuel O’Brient 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 InvestorPlace.com Publishing Guidelines.
