Trump Set To Become $4 Billion Richer, But There’s a Major Problem

by Jessica

Former President Donald Trump appears poised to amass an additional $4 billion fortune, courtesy of a high-profile merger involving his social media venture, Truth Social.

According to a report by Vanity Fair on Friday, March 8, 2024, beneath the surface of this lucrative deal lies a web of challenges that could potentially derail Trump’s financial aspirations.

The merger between Truth Social’s parent company, Trump Media and Technology Group, and Digital World Acquisition Corporation, has sparked both excitement and skepticism.

On the surface, the $9 billion valuation of the combined entity promises substantial gains for Trump and his associates. Yet, closer scrutiny reveals underlying issues that cast a shadow over this windfall.

One of the primary concerns revolves around the unconventional nature of the merger. By opting for a SPAC route instead of a traditional IPO, Trump bypasses the stringent regulatory scrutiny typically associated with public listings.

This raises red flags among legal experts, who question the transparency and accountability of such arrangements.

Michael Ohlrogge, a professor at New York University School of Law, told Vanity Fair that SPACs aren’t necessarily an easier path to going public.

“This has been an extremely slow, expensive, uncertain process with an enormous amount of scrutiny from the SEC,” he said in an email. He suspects that a big, established investment bank wouldn’t have wanted to take on the “liability and reputational risk” of doing an IPO for this merger, but a less prestigious bank may have.

Furthermore, the volatile nature of meme stocks and SPACs adds a layer of uncertainty.

Trump’s fervent political base, known for its unwavering loyalty, could drive speculative trading, leading to erratic stock performance detached from underlying fundamentals.

This poses a significant risk to Trump’s investment, as stock prices fluctuate unpredictably in response to market sentiment.

Michael Klausner, a professor at Stanford Law School, says that the “share price of many, many SPACs—for a period of time around their merger—is out of line with their true value.”

But he’s seen SPACs bought up by retail investors—just because they’re SPACs—and driven far above their value, only to descend when the hype dies down. “Very, very few are up now.”

Moreover, Trump’s plan to cash out his equity holdings faces significant hurdles. Attempting to sell large volumes of stock could trigger a sharp decline in share prices, undermining the value of his investment.

Additionally, legal challenges, such as lawsuits from disgruntled co-founders alleging dilution of their shares, threaten to disrupt the merger process and further complicate Trump’s financial maneuvers.

Jay Ritter, a finance professor at the University of Florida, says meme stocks often depend on the “greater fool theory of investing,” meaning rational investors might buy in expecting the stock price to rise and betting that they can sell their shares to a greater fool willing to buy them at a higher price. In this case, however, Ritter speculates there is an inordinate number of individual retail investors compared to institutional investors, such as hedge funds, that normally own SPAC shares prior to a merger. “Here you’ve got ideology involved [too]—as far as I can tell, the vast majority of DWAC investors are Trump political investors, and they’re to some degree putting their money where their mouth is… My suspicion is most of them have bought the stock as a show of political support.” In this way, Trump is conducting yet another public fundraising from his supporters—this time through the public markets.

The timing of Trump’s windfall is also noteworthy, as it coincides with mounting legal and financial pressures. With debts totaling over $450 million and ongoing legal battles, Trump’s need for liquidity is urgent.

However, the rush to monetize his equity holdings risks exacerbating existing challenges and could potentially backfire, leaving Trump in a precarious financial position.

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