The Securities and Exchange Commission announced Thursday that it settled with the blank-check company seeking to merge with former President Donald Trump's media company.
The SEC said Digital World Acquisition Corporation (DWAC) violated anti-fraud laws by failing to disclose to investors that it was actively pursuing a merger deal with Trump Media & Technology Group (TMTG), which owns the social media site Truth Social, before it went public.
Nearly two years ago, TMTG announced that it would merge with Digital World, which is a special purpose acquisition company, or SPAC. However, the SEC alleges that DWAC had held talks with Trump's team long before that, despite DWAC stating in a previous SEC filing that none of its officers or investors had any discussions with potential acquisition targets.
In a statement, the SEC called the filings by DWAC "false and misleading."
"In the context of a SPAC -- a 'blank-check' entity without business operations -- these disclosure failures are particularly problematic because investors focus on factors such as the SPAC's management team and potential merger targets when making financial decisions," said Gurbir S. Grewal, director of the SEC's Division of Enforcement.
A SPAC, also known as a blank-check company, is a shell company that debuts on the public market with the stated intent to acquire an existing private company. SPACs are often used as a way for private companies to go public without the time-consuming and expensive process of raising money through a traditional initial public offering.
DWAC agreed to a cease-and-desist order and to pay an $18 million penalty if it closes a merger transaction.
The SEC said it also found that Digital World failed to disclose that its CEO had a potential conflict of interest with TMTG based on a previous agreement he signed with the company.
Neither DWAC nor TMTG immediately responded to requests for comment.
Last month, federal prosecutors arrested three investors on insider trading charges related to Digital World's deal with Trump's media company. According to the indictment, the investors allegedly made more than $22 million by illegally trading on knowledge that DWAC would purchase TMTG — before it was public knowledge.