Donald Trump may suddenly find himself sitting on a gold mine when Truth Social goes public, but there's a major catch.
Truth Social's parent company is set to go public soon once it merges with Digital World Acquisition Corporation, and Trump fans could artificially pump up the value of the former president's investment as a show of political support — but he could face some hurdles to turning those shares into cash, reported Vanity Fair.
"As far as I can tell, the vast majority of DWAC investors are Trump political investors, and they’re to some degree putting their money where their mouth is," said Jay Ritter, a finance professor at the University of Florida. "My suspicion is most of them have bought the stock as a show of political support.”
Truth Social drew only 5.4 million visitors last month, with $3.4 million in advertising revenues over the first nine months of 2023, but its parent company, Trump Media and Technology Group, could be valued at $9 billion once it merges with DWAC — and the former president's stake would be worth nearly half of that.
It's taken two years to take Trump Media public pending a federal investigation by the U.S. Securities and Exchange Commission, which charged DWAC with securities fraud for illegally holding merger talks with the former president's company before going public. DWAC settled the case for $18 million.
The SEC approved the merger last month, and Trump could suddenly be holding $4 million in equity — more than enough to pay his judgments and legal fees.
But he could tank the whole enterprise if he tries to cash out too quickly.
“The faster he sells and the more he sells," Ritter said, "the quicker the stock price will decline."
Trump could potentially borrow money using his stock as collateral, but that would require an exemption from the post-merger company, or he could just hope the board ignores the terms of its agreement with DWAC which forbid it.
“If there were a bank that did take such a deal [allowing Trump to use his stock as collateral], it would raise serious concerns that the bank is doing it for reasons other than a belief it is a profitable lending opportunity,” said Michael Ohlrogge, a professor at New York University School of Law.
“Namely, it would raise concerns that the bank is doing it in order to win influence with someone who might become U.S. president. If that bank were affiliated directly or indirectly with a foreign government, it would be even more concerning still.”