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Trump SPAC faces grand jury investigation

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A company that plans to merge with former President Donald Trump’s social network has received a subpoena from a federal grand jury, which could complicate Trump’s plans to take his company to public markets.

The company, known as Digital World Acquisition Corp., reported the subpoenas in a June 24 SEC subpoena and warned that they “may materially delay, materially prevent or interfere” with the deal. If the merger goes through, Trump’s business could access more than $1 billion in investor funding.

The grand jury is at least the third investigative body to scrutinize Trump’s deal with the Special Purpose Acquisition Company (SPAC) after the SEC and the Financial Industry Regulator launched their own investigation.

Digital World Acquisition did not immediately respond to a request for comment.

Shortly after launch, Trump SPAC was flooded with cash, but its stock price has plummeted since the app’s debut. It fell 9.6% on Monday to close at $25.15; by comparison, it traded above $97 in early March.

According to the filing, the grand jury requested some of the same documents that the SEC requested. They include information about communications “with or about multiple individuals” as well as information about Miami-based investment firm Rocket One Capital. Also on Monday, the company announced the resignation of one of the leaders of DWAC, who is called the head of Rocket One.

It was not possible to contact representatives of Rocket One. The company’s website appears to visitors to be down for maintenance.

Trump has presented his new social network Truth Social as a competitor to big tech companies, giving him an undeniable space to express his thoughts and create an alternative to what he calls the “liberal media consortium.” In addition to the social network, Trump Media & Technology Group touted plans for a subscription streaming service covering news, entertainment, and podcasts.

The launch of the social network earlier this year was marked by major disruptions. The website remained completely unavailable in its early days of debut due to technical glitches, 13 hours of downtime, and a waiting list of 300,000, raising questions about its viability. Since then, app downloads have plummeted, resulting in a loss of investors, executives, and attention.

A SPAC is a shell company created to take a private company public by merging with it. They are called blank check companies because investors can buy shares without knowing which business SPAC will eventually acquire.

Although SPACs in their current form have been around since the early 2000s, their popularity has skyrocketed in recent years, attracting celebrities such as Shaquille O’Neal, Jay-Z and Trump. But they also caused regulatory scrutiny, disappointing investors who suffered losses, and withdrawal from the market.

Transactions have become an alternative way to enter the public markets. But SPACs have been particularly hard hit during the recent market downturn as investors back away from riskier bets and regulators have proposed new rules to tighten disclosure requirements and protect investors.

One index that tracks SPAC performance, the De-SPAC index, is down more than 60 percent for the year, compared to the benchmark S&P 500’s drop of about 19 percent.

This year, DWAC has lost more than half its value.

Before Wall Street gave up on SPACs, there was huge interest in investment vehicles because they could save companies and investors time and money. Stakeholders can bypass the traditional IPO process and strike quickly by taking advantage of the upside spikes in the market.

After the initial economic shock at the start of the pandemic, an investment frenzy at the SPAC has erupted, attracting hedge funds and retail investors trying to find their next source of income amid the financial chaos generated by the public health crisis.

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