We are short shares of Digital World Acquisition Corp. (DWAC), a SPAC valued at over $8bn on a pro forma basis, because we believe it will never secure the necessary regulatory approval to close its proposed merger with Trump Media & Technology Group (TMTG). While recent pressure on DWAC shares has been attributed to the executive exodus at TMTG and Elon Musk’s interest in acquiring Twitter, DWAC’s stock has much further to fall given the demonstrably misleading statements in DWAC’s registration statement, the status of TMTG’s operations at the time the merger agreement was executed, the cast of characters seeking to consummate that merger and those individuals’ flagrant disregard for SEC rules and regulations. DWAC is not just another dubious 2021 SPAC; it is a poster child for some of the worst abuses the investment vehicle has spawned.

Recent SEC actions confirm that 1) the agency is serious about reining in a financial sector widely regarded as rife with potential fraud and conflicts of interest, and 2) SPAC enforcement investigations are priority matters within the commission. In DWAC, the SEC has been handed textbook examples of the types of SPAC-related misconduct that it is intent on shutting down. And, given DWAC’s and TMTG’s exceptionally high profile, an aggressive enforcement action would be an ideal way for the SEC to send a loud, unmistakable message to the industry. DWAC has admitted it is under SEC investigation for statements made in its S-1, as well as the timing and circumstances surrounding its proposed merger with TMTG. A prime actor in this affair is an obscure Chinese investment firm, ARC Group, that has been repeatedly punished by the SEC for lying about the true nature of businesses that turned out to be shell companies. Investors should abandon the fantasy that DWAC’s problems can be easily remedied with amended disclosures and a nominal fine. Contrary to the uninformed views of bulls, the SEC does have the ability to effectively kill the proposed merger, using, ironically, the same mechanism it used to kill three of ARC Group’s companies just five years ago.

Truth Social’s disaster of a launch, among many other red flags regarding TMTG, raise valid concerns over execution and the company’s long-term viability. But more importantly, these factors raise serious doubts regarding the scope of due diligence DWAC conducted in the six weeks between its IPO and execution of the TMTG merger agreement. Starting a social media platform from scratch, particularly one linked to the former President, requires experienced leadership and resources across a host of critical technical disciplines. In addition, as the post-merger surviving operating business, TMTG would reasonably be expected to have the infrastructure necessary to function as a public company. Yet, none of that remotely existed when DWAC signed the merger agreement with TMTG. By all indications, in October 2021 TMTG was a shell company with no or only nominal operations. To gain SEC approval of a supposedly forthcoming S-4, DWAC needs to accurately detail the extent of the due diligence it conducted regarding TMTG within just six weeks, as well as explain the specific reasons why it believes merging with a de facto shell company is in DWAC shareholders’ best interests. Given these challenges we think there is significant risk DWAC never files an S-4 at all.

Six weeks into Truth Social’s bungled launch, senior executives are already fleeing. Six months after the merger, DWAC still hasn’t filed even an initial S-4. With each passing day, the truth becomes harder to deny; a merger between two sketchy companies that is already taking too long is likely headed for collapse. We value DWAC at the cash held in trust: $10 (-80%).

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