Trump, Lucid SPAC Deals Being Investigated by SEC

The Wall Street Journal2021-12-07

The Securities and Exchange Commission is probing two of the most notable SPAC deals struck this year, including former President Donald Trump’s venture, signaling that regulators are ratcheting up ...

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galvinpangg
2021-12-07
galvinpangg
Ouch
SvdB
2021-12-07
SvdB
Ok
987ce65
2021-12-07
987ce65
Great ariticle, would you like to share it?
- 杰森杰森OvO:
  👍🏻
Aeron2020
2021-12-07
Aeron2020
oups
SeanSak
2021-12-07
SeanSak
Like n comment
- SvdB:
  Ok
- DragonKC:
  Good.
Jo_vie
2021-12-07
Jo_vie
Ok

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On Monday afternoon, Trump Media & Technology said Rep. Devin Nunes (R., Calif.) would be leaving the House and joining the company as chief executive officer.\n\nAlso Monday, electric-vehicle startup Lucid Motors Inc. said it got an SEC subpoena about projections and statements it made as part of its recently completed SPAC deal. The merger valued Lucid at roughly $24 billion, making it one of the largest-ever SPAC mergers.\n\nRepresentatives for Trump Media & Technology, Digital World and Lucid didn’t respond to requests for comment.\n\nThe SEC declined to comment.\n\nSPACs have been around for decades but used to be an arcane, rarely used deal-making tool. Over the past year, they have surged as an alternative to traditional initial public offerings and a way to invest in hot startups. SPACs have raised as much money as traditional IPOs this year and have become ubiquitous among large banks and investment firms profiting from their exploding popularity.\n\nRegulators have the responsibility for overseeing 571 SPACs that have raised money this year. For comparison, in the five years leading up to 2020 when the SPAC boom began in earnest, 172 SPACs raised money, according to SPAC Research.\n\nAlso called a blank-check company, a SPAC is a shell that raises money and trades on a stock exchange while seeking to merge with a private company to take it public.\n\nAfter the Trump-Digital World deal was announced, The Wall Street Journal and other media outlets reported that Mr. Trump met with Digital World Chief Executive Patrick Orlando early this year, before the SPAC had raised money. If the meeting is deemed to have represented substantive deal talks, it could violate SEC rules. SPACs aren’t supposed to have a target company identified at the time they initially raise money, analysts say.\n\nThe SEC reached out in November seeking information from Digital World about its investors, trading policies and communications between the SPAC and Mr. Trump’s company, according to the filing. It couldn’t be determined whether the SEC is specifically seeking information regarding Mr. Orlando’s meeting with Mr. Trump.\n\nSEC investigations typically focus on whether public companies made accurate disclosures to investors and take months or years to complete. Its civil probes don’t always result in formal allegations of wrongdoing.\n\nThe SEC has launched numerous investigations of SPAC deals, as concerns swirl that such mergers disproportionately benefit insiders at the expense of other investors. Some analysts also worry that projections companies make when combining with SPACs mislead investors. Those projections aren’t allowed in traditional initial public offerings.\n\nElectric-truck startup Nikola Corp. , which went public via SPAC, has said it would likely pay about $125 million to settle an SEC probe of its founder’s statements.\n\nEarlier this year, the SEC changed some accounting rules for blank-check companies. The rule change, combined with volatile stock prices for companies that went public via SPACs, contributed to a brief slowdown this summer in the creation of new SPACs, but issuance is rebounding again to end 2021.\n\nMore investigations could hurt sentiment in a sector that has exploded in the past year and continues to prove more resilient than anticipated, investors said.\n\n“Clearly they’re concerned with this boom in a new asset class,” said Julian Klymochko, who manages a SPAC-focused fund at Accelerate Financial Technologies. “This could be another way to slow things down as they play catch-up.”\n\nIn an example of how SPAC mergers can backfire, BuzzFeed Inc. recently lost nearly all of its SPAC’s money due to investor withdrawals, leaving it with scant cash proceeds from the transaction. Shares fell 11% to $8.56 on their first day of trading after the digital-media outlet replaced its SPAC in the stock market. SPAC investors tend to withdraw money when share prices are low before deals get finished.\n\nDespite worries about rising withdrawals, tighter regulation and the struggles of some startups that went public this way, new blank-check firms are raising money at the fastest pace since the peak of the frenzy early this year. SPACs now have raised roughly $155 billion this year, nearly doubling last year’s then-record figure, according to SPAC Research.\n\nSPAC mergers also continue to be announced at a steady pace, including recent deals for electric-vehicle maker Polestar and American Express Global Business Travel.\n\nShares of the Digital World SPAC taking Mr. Trump’s company public fell 2.6% to $43.81 Monday. They have still roughly quadrupled since the deal was announced, though they are well below an October intraday peak of $175 after individual investors piled into the stock.\n\nLucid shares slid more than 5% Monday. Its market value is still around $75 billion, just weeks after it delivered its first electric vehicles to customers.\n\nIn another sign of investor enthusiasm for the Trump SPAC, Digital World said over the weekend that it is raising $1 billion from investors in a private investment in public equity, or PIPE, associated with the deal. That money, and some or all of the roughly $287.5 million held by the SPAC, could be used to grow Trump Media & Technology Group.\n\nThe PIPE investment and current Digital World SPAC price would value Trump Media & Technology Group at several billion dollars.\n\nThe $1 billion in PIPE commitments put the company among a select group. Only a few well-established companies that went public via SPACs, including Lucid, Southeast Asian app operator Grab Holdings Ltd. and personal-finance app operator SoFi Technologies Inc., have raised at least that amount.\n\n\nBut the announcement was abnormal in that the company didn’t say who the PIPE investors are or specify what they value the firm at, analysts said. Instead, it said PIPE investors would buy in at a price determined by a formula relating to the stock’s average price over a several-day period in late November and then before the deal closes.\n\nNormally, PIPE investors in SPAC deals have to hold on to their shares for months after deals close. But in the Trump Media & Technology Group merger, PIPE investors could be able to quickly sell for a profit if they end up buying in at a discount and the opportunity arises, analysts said. The complicated structure could have attracted hedge funds and others seeking fast profits rather than a long-term bet on Mr. Trump’s company, they said.\n\nMr. Trump has said the new company aims to combat the dominance of mainstream social-media platforms such as Twitter Inc. and Meta Platforms Inc.’s Facebook. He was banned from such outlets following the Jan. 6 assault on the U.S. Capitol.\n\nThe Digital World SPAC raised money in September, then announced its deal in October, one of the fastest such announcement timelines among the hundreds of blank-check mergers tracked by SPAC Research.\n\nIn the coming months, Trump Media & Technology Group would have to disclose its ownership structure and business information before the deal closes. Little is known about the new company and its social-media platform Truth Social.\n\nAfter regulators review its financial information and the deal is completed, Trump Media & Technology Group would replace the SPAC in the stock 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