Inside the 'weird' world of DWAC -- Trump's already soaring social media SPAC

For many investors, it apparently doesn't matter that former President Donald Trump's new media venture has yet to create, well, anything.

Millions rushed Thursday to snatch up shares of the blank-check company Trump is using to take his new media venture public, more than quadrupling its stock value in just one day.

As a result of the frenzied buying spree, shares of the shell company, called Digital World Acquisition Corp., are now sitting at $45.50 — which values it at a whopping $3.9 billion without ever launching a product. For reference, that's roughly half the size of The New York Times, and commensurate with the value of Netflix after it had already been in business for eight years.

The surge in trading was so drastic that Fidelity even reported it was the No. 1 most traded name on its platform Thursday.

DWAC is what's known as a "SPAC," or special purpose acquisition company. The strategy, which has become popular in recent years as a way to sidestep the typically onerous regulatory process of taking a company public, typically occurs when a non-public company merges with a shell company that is already public. In this case, DWAC is set to merge with "Trump Media & Technology Group."

In a press release Wednesday night, the ex-commander-in-chief touted the deal in especially Trumpian terms, saying he hoped to create a "rival to the liberal media consortium." But the numbers he cited also valued the company at just $1.7 billion — still a huge sum for a company without any apparent cashflow.

The venture's first project will be a social media venture called "TRUTH Social," which is set to launch next month for "invited users" and will be available sometime early next year for the general public, according to Trump's statement.

Though the platform wasn't set to go live for at least a month, the intense interest led more than a few users through a backdoor which allowed them to create their own accounts — with some even posing as Trump himself. In one instance highlighted by The Washington Post, someone who grabbed the "donaldjtrump" username posted a picture of a defecating pig to the account.

Trump himself will serve as chairman of TMTG, which is also planning a video-on-demand streaming service, TMTG+, and a news network, TMTG News, according to a public pitch deck obtained by Salon. The slides contain a number of lofty plans for the company to disrupt the business models of any number of perceived competitors, from Netflix to Disney to Twitter and Facebook, but notably did not include any financial projections or information on corporate structures, which are usually a part of such presentations.

"I don't know enough to say it's unprecedented, but it's weird," Michael Ohlrogge, an assistant professor of law at New York University who researches SPACs, told the Associated Press. "Given a lot of things that happen with Trump are not great with details and formalities, it's perhaps not surprising, but it's not the norm in SPACs."

The former president's interest in building a media empire has long been a source of speculation — many pundits were convinced back in 2016 that his presidential run was simply a ploy to generate interest in a subsequent media venture. In fact, former aide Jason Miller, who after Trump's 2020 election loss formed his own social media company, Gettr, confirmed in a congratulatory statement Wednesday that he and Trump had been in talks to collaborate on the venture but "couldn't come to terms on a deal."

But despite the former president's involvement, it was the the strange details surrounding DWAC that had many experts scratching their heads.

According to documents filed with the Securities and Exchange Commission, the company was formed just a few weeks after Trump's 2020 loss, with the stock brokerage firm Kingswood Capital Markets as the sole underwriter. As New York Magazine noted on Thursday, Kingswood used to be called EF Hutton — a 1980s financial powerhouse that was eventually sold after it was revealed the firm was involved in illegal mob-related ventures. Trump also famously bragged about dealing with the New York City Mafia during his years as a real estate developer.

DWAC's official address is listed as a WeWork office in Miami, while its management team is also drawing a fair bit of scrutiny. Patrick Orlando, the firm's CEO, appears to be a SPAC veteran whose most recent offering is Yunhong International, another blank-check company located in Wuhan, China.

The firm's CFO is a strange pick as well: Luis Orleans-Braganza, a top deputy to Brazilian President Jair Bolsonaro and current member of the country's parliament.

The New York Times also reported that at least one of the initial investors in DWAC, Saba Capital Management, was not aware as late as this spring that the company was planning a deal with the former president.

It's unclear whether DWAC's sky-high valuation will hold. SPACs enjoyed a moment earlier this year in which a number of similar deals enjoyed early success, though many of those tickers have since come down to earth.

It's also important to note that a key feature of SPAC deals are the unique incentives that protect company insiders while other investors bear much of the risk if a deal fails to garner expected returns.

Trump's last publicly traded venture, a casino company called Trump Entertainment Resorts, also ended in heartbreak for investors after it lost hundreds of millions of dollars in just over a decade, a period during which it filed for bankruptcy numerous times. Though if the past is any indication, Trump will likely come out on top — Fortune Magazine reported at the time that he earned more than $82 million from the company before it went bust.