Warnings in the IPO prospectuses of U.S. companies serve, among other things, to hedge against potential investor lawsuits. These usually include all kinds of scenarios about what could potentially go wrong for a company. In the case of Digital World Acquisition, the special purpose acquisition company that is in the process of merging with Trump Media & Technology Group (TMTG), which owns Truth Social, Donald Trump’s social network, there is a whole chapter dedicated to risk factors related to the former president. Among them, it is noted that Trump’s companies often end up in bankruptcy. It also openly warns of the risk of the Republican front-runner for the presidential nomination being “imprisoned.”
The likelihood of Trump going to jail has long ceased to be a wild hypothesis. He has been charged in four separate cases in which he is accused of 91 crimes, all of which carry potential prison sentences. For the company’s purposes, the risk is that Trump will stop posting on Truth Social, resulting in a loss of audience, and that its already heavy losses will skyrocket.
“The death or incapacity of president Trump, or discontinuation or limitation of his relationship with TMTG, may negatively impact TMTG’s business,” reads one of the sections of the risk warnings, filed with the U.S. Securities and Exchange Commission in May 2022. The company “is highly dependent on the popularity and presence of president Trump,” TMTG’s chairman and largest shareholder. In addition, it continues, the tycoon “has a significant influence on TMTG’s business plan,” and as such, “president Trump’s reputation and relationships are a critical element to the success of TMTG’s business.”
“TMTG’s future success will depend, to a significant extent, upon the continued presence and popularity of president Trump,” the document continues. “If president Trump were to discontinue his relationship with TMTG due to death, disability, or any other reason, or limit his involvement with TMTG due to becoming a candidate for political office, TMTG would be significantly disadvantaged.”
In theory, Trump can run for president of the United States from prison, and even win the election and hold office. However, if prison officials won’t allow him to post on Truth Social, that will be bad for his business. The former president’s platform has not managed to overshadow Facebook or Twitter in the slightest. Its main, and almost only, attraction is that it is where Trump holds forth. The Republican is the network’s most successful user, with 6.5 million followers. Even so, that is a fraction of the 87.5 million who follow his dormant account on X, the social network formerly known as Twitter, to which he was readmitted thanks to Elon Musk. The former president has a kind of exclusivity contract with Truth Social, of which he is also the largest shareholder and president, whereby his messages must be published in general on that social network at least six hours before any other. In practice, it is the only network he uses regularly.
The company recognizes that it needs to attract Republican voters to Truth Social to be viable and admits that if Trump loses popularity or new controversies arise that damage his credibility or dampen people’s desire to use a platform associated with him, operating results will suffer.
There are several warnings along the same lines. In one, the company notes that Trump is the subject of numerous legal proceedings, the scope and scale of which are unprecedented for a former U.S. president and a candidate in the Republican primaries. “TMTG cannot predict what effect, if any, an adverse outcome to such matters, or even their continued existence, may have on president Trump’s personal reputation and TMTG’s business or prospects,” the document says.
The IPO prospectus also reviews some of Trump’s business precedents, at a time when he is on trial for fraud in a civil case in New York. The warnings would serve to scare off even the most hardened speculator: “A number of companies that were associated with president Trump have filed for bankruptcy. There can be no assurances that TMTG will not also become bankrupt,” reads one section. “A number of companies that had license agreements with president Trump have failed. There can be no assurances that TMTG will not also fail,” warns the next. “A publicly-traded entity controlled by president Trump has previously been subject to a cease and desist order issued by the Securities and Exchange Commission,” the document also warns, referring to the 2002 scandal involving Trump Hotels & Casino Resorts “for violations of the anti-fraud provisions of the Exchange Act,” relating to irregularities in the reporting of the company’s results.
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