What happened
Digital World Acquisition's (DWAC) share price improved by 17% Wednesday on news that the company had reached a potential settlement with a U.S. regulator. That was in sharp contrast to the S&P 500 index, which slumped by 0.2%. The company aims to become the corporate vehicle for former President Donald Trump's Trump Media & Technology Group (TMTG).
So what
Digital World Acquisition divulged in a regulatory filing that it has reached an agreement in principle with the Securities and Exchange Commission's (SEC) Division of Enforcement.
In the special purpose acquisition company's words, the SEC had been investigating "certain statements, agreements and the timing thereof... in connection with its initial public offering." The regulator is particularly concerned about these in relation to the long-planned, and highly anticipated, merger of the company and TMTG.
Digital World Acquisition said in the document that the deal centers on a provision in its agreement and plan of merger document from October 2021. This states that the company "shall not settle or compromise any claim, action or proceeding, including any suit, action, claim, proceeding or investigation relating to the merger agreement or the transactions contemplated thereby, in excess of $100,000," without prior written consent from TMTG.
Now what
The SEC's Enforcement Division has accepted the agreement in principle, but it needs the full approval of the regulator. If that occurs, the SEC will enter a cease-and-desist order stating that Digital World Acquisition had violated several provisions of U.S. antifraud law. Additionally, the company will revise the offending documentation and pay a civil penalty of $18 million after it merges with TMTG "or any other entity."
