April 18, 2024

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Trump Media is sued by the co-founders, threatening to delay its merger

Trump Media is sued by the co-founders, threatening to delay its merger

A series of lawsuits threatens to disrupt a shareholder vote on the long-awaited merger between former President Donald J. Trump's social media company and a cash-rich shell company.

Two of the early founders of Trump Media & Technology Group have filed a lawsuit to maintain their ownership stake in the parent company of online publishing platform Truth Social. The lawsuit, filed Wednesday under seal in Delaware Chancery Court by a partnership led by Wes Moss and Andy Litinsky, alleges that Trump Media is trying to dilute its ownership stake in the company, of which Mr. Trump is a majority shareholder.

The lawsuit seeks an urgent hearing in Delaware state court before Digital World Acquisition Corp. shareholders vote on March 22 on its merger with Trump Media. Digital World is a special purpose acquisition company created to raise money from investors in an initial public offering and use that money to find a private company like Trump Media to buy.

Mr. Moss and Mr. Letinsky were contestants on Mr. Trump’s reality TV show “The Apprentice,” and went to it in January 2021 with the idea of ​​starting a social media company.

Patrick Orlando, former CEO of Digital World, also filed a lawsuit in Delaware seeking additional shares in the company. Digital World filed its own lawsuit in Florida state court arguing that Mr. Orlando, who was the sponsor of the company's initial public offering, was not entitled to more shares because of his “greed, incompetence, and general refusal to dispose of” the company's stock. Best attention.

Digital World raised $300 million in an IPO in September 2021, and about a month later announced its planned merger with Trump Media, which needs the deal to operate Truth Social. Mr. Trump's social media company said in regulatory filings that without a new source of funding, it may not be able to survive.

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In a regulatory filing on Friday, Digital World raised the possibility that Mr. Orlando, who remains on the board, might reject the merger. Mr. Orlando's group owns about 15 percent of Digital World's shares; Most of the remaining shares are owned by about 400,000 retail investors. In another file, he raised the possibility of potential lawsuits that could delay the merger process.

After the merger, Mr. Trump will own 79 million shares of Trump Media. Based on Digital World's current stock price of $39, Mr. Trump's holding would be worth $3 billion. The potential merger comes at a time when it must raise the funds needed to pay a $454 million fine after a New York judge ruled in a civil fraud case.

By merging with Digital World, Trump Media will receive not only cash flow to fund its operations, but also publicly traded stock that can be used to fund acquisitions. As chairman of Trump Media, the former president received the lion's share of the stock because of the value of his name in the company's success. He will be its largest shareholder if the merger with the public company is completed.

Digital stocks rose as Mr. Trump moved closer to securing the Republican nomination for president and with the deal likely to close later this month. Its stock price has risen even though advertising on Truth Social has been lackluster.

Mr. Orlando's company, which sponsored Digital World, will be Trump Media's second-largest shareholder.

Mr. Orlando's lawsuit comes months after he resigned as CEO of Digital World and while it was negotiating a settlement with the Securities and Exchange Commission. Last summer, Digital World agreed to pay an $18 million fine to resolve allegations that it engaged in improper merger talks with Trump Media ahead of its initial public offering. SPACs are not supposed to have a deal listed before an IPO

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In the settlement agreement, regulators described Digital World's CEO, who was not named but identified by job title, as playing an integral role in those early deal talks. In its lawsuit against Mr. Orlando, Digital World said Mr. Orlando received formal notice from the Securities and Exchange Commission that he may be subject to enforcement action.

Mr. Orlando has not been accused of any wrongdoing. He declined to comment, and his lawyer did not respond to a request for comment.

Susan C. Beachy contributed research.