Trump's shady social media company could trigger new wave of enforcement against 'blank check' firms: report
Donald Trump (AFP)

On Thursday, Axios reported that Trump's controversial deal to create a social media company could lead to a new wave of federal regulation and oversight against the type of entity he is using for the deal, known as special purpose acquisition companies, or "SPACs."

"Sen. Elizabeth Warren (D-Mass.) Wednesday sent a letter to Securities and Exchange Commission chair Gary Gensler, asking his agency to investigate the proposed merger between Trump's amoebic social media company and a SPAC called Digital World Acquisition Corp," reported Dan Primack. "She's particularly interested in a NY Times report that Digital World's chair and CEO Patrick Orlando held talks with Trump before the SPAC filed for its IPO in May or priced it in September. Those discussions apparently were related to a proposal that Axios scooped in April."

According to the report, "SPAC sponsors are not allowed to source potential merger targets prior to the SPAC going public, and DWAC made multiple representations in its IPO filings that its executives had followed the rules."

Nonetheless, the Times report suggested that the deal may run afoul of securities law, and many investors reportedly didn't even know he was involved at the time they gave money to the venture.

"What DWAC is alleged to have done is not unusual in SPAC-land. In fact, it's the industry's dirty little secret that many SPAC sponsors, particularly serial ones like Orlando, source deals before they're technically supposed to," said the report. "The bottom line: Warren's letter, and the NY Times investigation on which it's based, may shine a spotlight that's impossible for the SEC to ignore. And if there is a crackdown, it could impact lots of SPACs that have nothing to do with Donald Trump or his social media dreams."