‘Defund the SEC’ Becomes a Rallying Cry on Trump’s Social Media Site

The Securities and Exchange Commission is corrupt. The S.E.C. is politically motivated. Defund the S.E.C.

Some shareholders of Digital World Acquisition Corp. have had it with the commission, the nation’s top securities cop, and they are airing their views loudly. Last October, the blank check company agreed to merge with Trump Media and Technology Group, the parent company of Truth Social, the Twitter-like social media platform backed by former President Donald J. Trump. Within weeks, the S.E.C. announced an investigation. One year later, the deal still hasn’t closed.

People claiming to be angsty shareholders have taken to posting the social media equivalent of hate mail on Truth Social, attacking the S.E.C. and calling its investigation a political move. The hashtag #DWACtheSEC, a reference to Digital World’s stock symbol and a play for some on the word “whack,” is trending. There are calls to “defund the S.E.C.” Shareholders are preparing to petition the commission to end the “garbage” inquiry and approve the deal. There is even a call to pray for Digital World on a weekly video show on Rumble, a right-wing streaming media site that is a business partner of Trump Media.

It’s shareholder activism — with a Make America Great Again spin.

“There is no reason to prevent the merger from taking place, except to stop Trump from getting a voice to the people,” said Scott Lewczak, a Digital World shareholder.

Mr. Lewczak, a graphic designer based in Nokesville, Va., posts frequently on Truth Social. He liked the social media company so much that six months ago he bought shares of Digital World, also known as a special purpose acquisition company or SPAC. Even though shares of the SPAC have fallen about 70 percent since then, he refuses to sell as a matter of principle.

“I don’t trust the S.E.C.,” Mr. Lewczak said. “The S.E.C. is corrupt.”

The campaign by small investors, who own a majority of the shares of Digital World, is the latest twist in a deal that has gotten nearly as much attention for the unusual way it came about as it has for Mr. Trump’s involvement.

In February 2021, Patrick Orlando, the main backer of Digital World and its chief executive, began discussions with representatives of Trump Media about a merger with another SPAC that Mr. Orlando controlled. The Trump social media company had been created just weeks earlier by associates of the former president after he lost the 2020 election and shortly after the attack on the U.S. Capitol by some of Mr. Trump’s supporters.

The two parties later decided that Digital World was a better vehicle for Trump Media to go public, because it was planning to raise a bigger amount — $300 million — through its public offering, The New York Times previously reported. Special purpose acquisition companies are shell entities that go public first, raise money from investors and then go looking for an operating company to merge with. For many businesses, SPAC mergers provide a quicker route to the public markets than a traditional initial public offering.

Digital World went public in September 2021. In its filings, the SPAC told investors that there had been no substantive deal talks with any potential target. One month later, Digital World announced plans to merge with Trump Media.

Within weeks of the announcement, the S.E.C. opened an investigation into the deal, following news reports that the companies had flouted regulations by discussing a merger before Digital World went public. It’s generally against the rules for SPACs like Digital World to have a target in mind before going public.

Also, right before the merger of Digital World and Trump Media was announced in October 2021, there was an unusual surge in trading in shares of the SPAC. Federal prosecutors began their own inquiry. Now regulators and federal prosecutors in Manhattan are both looking into the trading, as well as the potentially improper communications between the two parties.

The proposed merger has since been stuck. The deal is unlikely to go through until the investigations are resolved. Thus, Trump Media cannot access the $300 million that Digital World raised through its public offering.

The failure to disclose those preliminary talks in the offering documents gave “the S.E.C. a rare, clear-cut case to investigate,” said Usha Rodrigues, the interim vice provost for academic affairs at the University of Georgia and a legal expert on SPACs.

The investigations haven’t deterred small investors like Mr. Lewczak from piling into the stock of Digital World. Such investors make up roughly three-quarters of the company’s shareholder base, according to data from S&P Capital IQ. Many of them are fans of Mr. Trump and have followed the former president — who is banned from Twitter — to Truth Social.

In the meantime, Trump Media has joined Digital World shareholders in their campaign against the S.E.C. The company is accusing the regulator of playing partisan politics for not signing off on the merger. It has also said it is considering suing the commission to force it to approve the deal.

Mr. Orlando also joined the campaign to pressure the S.E.C. In a recent regulatory filing, Digital World provided shareholders with the work phone number and email for the S.E.C. investor advocate in case they wanted to inquire about the review process.

Mr. Orlando and his lawyers did not return requests for comment. Representatives for Trump Media and the former president also did not return requests for comment.

An S.E.C. spokesman declined to comment. Digital World, in its filings, has said the many investigations could delay the deal’s approval.

J.W. Verret, a professor at Antonin Scalia Law School at George Mason University, said he couldn’t see any basis for a lawsuit against the S.E.C. “There is no there, there,” he said. Mr. Verret added it seems more like “posturing” or an attempt to stir up shareholders.

Riling up small shareholders may be the best course of action for Trump Media and Digital World as they wait for their deal to be approved, which could take many more months. And so, Mr. Orlando and other backers of Digital World are hoping that they can get a one-year extension to complete the deal — with the hope that the investigations will wrap up by then.

But to get that extension, Digital World needs the support of at least 65 percent of its shareholders. As of early September, Mr. Orlando, who also has been posting on Truth Social to rally investors, had a long way to go. Just over 40 percent of shareholders had voted for the extension, according to a person briefed on the matter.

The company is hoping that shareholders will come around by Oct. 10, the date set for a special meeting where the vote tally will be announced. The problem is that individual investors, who make up the majority of the SPAC’s shareholder base, are notoriously unreliable when it comes to casting proxy votes. On Friday, Mr. Orlando decided to push Mr. Trump directly — and publicly — on Truth Social, urging him to promote the shareholder vote. (Mr. Trump didn’t act on it, although he has criticized the S.E.C. in the past.)

The delay has caused pain for Digital World shareholders: Shares have fallen to about $18 from a closing high of $97 in March. The missed deadline for completing the merger also has jeopardized $1 billion in additional financing that dozens of hedge funds had agreed to provide Trump Media upon completion of the deal.

The company recently sidestepped a Sept. 8 liquidation date that would have required the SPAC to immediately return to investors $300 million raised in its I.P.O. The investor group that sponsored Digital World was able to temporarily postpone the liquidation until Dec. 8.

But even if shareholders give Digital World and Trump Media another year to complete the merger, the deal faces potentially insurmountable regulatory hurdles regardless of Mr. Trump’s involvement.

Adam C. Pritchard, a securities law professor at University of Michigan Law School, said with everything going on with the deal, Mr. Trump may be “creating the narrative for why things have fallen apart” by targeting securities regulators.

Mr. Pritchard said he did not see politics at work but a desire by the S.E.C. to rein in the SPACs. “The agenda is not to get Trump, it’s to get SPACs,” he said.

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