This one word could determine if Trump's Truth Social company committed securities fraud: NYT

On Tuesday, The New York Timesreported that the merger between Trump Media & Technology Group, the company behind former President Donald Trump's Twitter alternative Truth Social, and the special purpose acquisition company (SPAC) designed to raise the financing for it, could face securities fraud investigations — and the question of whether the deal broke the law hinges on a single word.

"To save the deal ahead of a December deadline, lawyers for Digital World Acquisition Corp., the special purpose acquisition company that plans to merge with Trump Media & Technology Group, recently met with regulators to plead their case," reported Matthew Goldstein. "Trump Media stands to get $300 million if the deal is completed, money it would use to fund its Truth Social media platform."

"Digital World’s case could hinge on the meaning of the word 'substantive,'" said the report. "Under S.E.C. rules, SPACs are not allowed to hold discussions with potential merger partners before they go public, and if they do, the talks must be disclosed. Failure to do so could constitute securities fraud. When it filed its papers to go public in September 2021, Digital World said there had been no 'substantive discussions, directly or indirectly' with any potential merger targets — a standard disclosure in SPAC deals. A month later, it merged with Trump Media."

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With the former president kicked off Twitter, and despite tech billionaire Elon Musk's apparent interest in reinstating him if his similarly legally troubled deal to buy Twitter goes through, Truth Social has become his go-to platform for announcements or random airing of grievances.

"Special purpose acquisition companies can be in a precarious position when they 'affirmatively say that no discussions had taken place' in a regulatory filing, said J.W. Verret, a professor at Antonin Scalia Law School at George Mason University," said the report. "He added that the Digital World investigation appeared to hinge on 'whether the preliminary discussions were material.'"

This comes as Digital World faces a number of other legal problems, including a fraud lawsuit against the SPAC's CEO from an executive who claims he was improperly frozen out of the deal.

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