Mary Williams Walsh's guided tour.
I recently asked Mary Williams Walsh, our managing editor and recent escapee from The New York Times, what she was planning on writing about next. “Truth Social,” she replied.
I wasn’t quite sure what to expect. I suppose I should have know. What follows is a remarkable piece of reporting — concise, comprehensive and clearly written.
We’ve had a lot of polling numbers in this space lately, many of them showing Donald Trump crushing his challengers for the Republican nomination, or in a statistical tie with Joe Biden for the White House. Now, thanks to an exhaustive regulatory filing by a key Trump business partner, we can add some numbers on the outlook for Truth Social and its parent, Trump Media & Technology Group.
They’re more bearish than the poll results. A lot more. In fact, it’s remarkable to see a businessman doing so well in the polls and so poorly in … business. Trump Media hasn’t had an operating profit since it launched Truth Social in February 2021. The value of the business has fallen so much that Forbes bumped Trump, who owns 90 percent, off its list of the 400 richest Americans. Trump Media’s outside auditor warns that the company may soon go under.
Trump founded Trump Media in the wake of the Jan. 6, 2021, assault on the U.S. Capitol, when the big social media companies threw him off their platforms. He saw the business as the way to get his podium back–and not just with Truth Social. When he announced the new venture, in October 2021, the press release said there would also be a subscription video-on-demand service called TMTG+, with “‘non-woke’ entertainment programming, news, podcasts and more.” There was buzz about online payment-processing and cloud-computing services, too.
The press release gave Trump Media “an initial enterprise value of $875 million,” and forecast “a cumulative valuation of up to $1.7 billion,” after it went public, “depending on the performance of the stock price.”
That didn’t pan out, but at least Truth Social is up and running, giving Trump a place to speak his mind. But is anybody listening? Before Trump’s Twitter account was suspended, he had 88 million followers there. Now, according to Forbes, he has just 6.44 million on Truth Social.
When it launched, Truth Social soared briefly to the top of Apple’s free-download chart, but the app was buggy and marred by feature outages. Downloads dropped off sharply. At this writing its App Store listing says “#178 in Social Networking.” (Meanwhile Elon Musk, who acquired Twitter and has changed its name to X, and reinstated Trump, but Trump prefers to stay with his own platform.)
Worse yet, mainstream advertisers haven’t come flocking to Truth Social. Its business model counts on ad revenue, but in the first six months of this year, it had sales of just $2.3 million. In all of 2022, sales were $1.4 million. By comparison, the former Twitter generated revenue of $4.4 billion in 2022. Trump may be a genius when it comes to drawing thousands of cheering fans to his rallies, but he doesn’t seem able to create the kind of platform where big advertisers want to showcase their wares.
Back in 2021, when Trump Media was making its debut, it joined forces with a Florida company called Digital World Acquisition Corp. Digital World is what’s known as a SPAC, or Special-Purpose Acquisition Company. A SPAC exists for the sole purpose of helping a privately-held business go public. A big wave of SPAC deals began shortly after the Covid-19 pandemic struck.
A SPAC works by first going public itself, through a conventional IPO. That raises money. The SPAC puts the money in trust, then identifies a privately-held business to take public. Next the SPAC merges with the privately-held business. By merging with the publicly traded SPAC, the privately-held business becomes publicly traded too. The money from the IPO becomes its working capital. The SPAC, having done its job, fades away.
The rationale for this was that if you went public with a SPAC, your deal would be deemed a merger, not a public offering of securities. Mergers were much less heavily regulated than IPOs, so going public with a SPAC was said to be faster and easier, with less scrutiny by the SEC. That was attractive during the pandemic, when economic and market uncertainties were jamming everything up. SPAC deals also offered investors inducements like “redemption rights,” allowing them to cash out at no loss, and free (yes, free) warrants, allowing them to buy more stock later at a predetermined price.
Trump was familiar with these advantages. He had tried to launch his own SPAC, Trump Acquisition Corp., in 2007, via Deutsche Bank, one of the few big Wall Street firms still willing to work with him after his many defaults and business bankruptcies. He brought son Donald Jr. and daughter Ivanka to the meetings, and gave his lawyer, Michael Cohen, responsibility for putting together what was hoped to be a $1 billion listing. But the capital markets were already strained with subprime-mortgage overload then, and the market for SPAC deals shut down in early 2008, before Trump could get his done.
SPACs came back with a vengeance in 2020. The rules of the game were still that a new SPAC should go public first–only then would it select its merger partner. It had two years to complete the merger. Institutional investors were expected to go into the SPAC’s IPO blindly, which is why they were given redemption rights. If the SPAC picked a merger partner an investor didn’t like, the investor could back out without a loss–and keep their free warrants. That way, when the merger was announced and naive retail investors piled on and turned the new company into a roaring-hot meme stock, the institutional investors could sit safely on the sidelines and still turn a profit on their free warrants.
Concurrently with the merger, the SPAC would typically have a PIPE, or Private Investor in Public Equity deal. This raised additional commitments from institutional investors, to support the newly public company. Digital World did a PIPE deal in December 2021, for commitments of $1 billion.
But first Digital World went public, in September 2021. In keeping with the rules, Digital World filed registration statements with the SEC, saying it did not yet have a merger partner and was not in substantive talks with any prospects. That was false. It had been in talks with Trump Media for months. But in any case, the IPO raised $287.5 million for what appeared to be some promising, nameless start-up that Digital World would identify soon.
Institutional investors paid $10 a share for Digital World’s stock in the IPO. There were some big ones: D.E. Shaw & Co., Highbridge Capital Management, Saba Capital Management, Lighthouse Investment Partners, and Radcliffe Capital Management. For the next couple of weeks the price hovered at around $9.95.
And then, ka-boom. Digital World and Trump Media announced in October that they had found each other and would soon be merging, giving rise to Truth Social and its affiliated TMTG+ media-tech business. There were few facts available. Trump didn’t explain, for example, how the $1.7 billion cumulative value had been calculated, or who Trump Media’s CEO would be.
Trump did say that he’d be chairman, and described the soon-to-be-public company’s mission: “to create a rival to the liberal media consortium and fight back against the ‘Big Tech’ companies of Silicon Valley, which have used their unilateral power to silence opposing voices in America.”
“We live in a world where the Taliban has a huge presence on Twitter, yet your favorite American president has been silenced,” Trump continued. “That’s unacceptable.” Truth Social was going “to give a voice to all,” and in time for the November 2022 midterms. The app wasn’t available yet, but prospective followers were invited to pre-order it.
Digital World’s CEO at that point, Patrick Orlando, said his company “was formed to create public shareholder value and we believe that TMTG is one of the most promising business-combination partners to fulfill that purpose.”
Digital World’s stock price went flying. Excited retail investors propelled it from $9.96 to $94.20 in just four days. The free warrants were deep in the money. By late November the stock had fallen back to $43.10—the initial investors had merely quadrupled their money—and then it started climbing again, spurred by news of a $1 billion PIPE deal.
Two days after the PIPE was announced, Trump Media said that California Rep. Devin Nunes, a longtime Trump ally, would leave Congress at the end of the month to become the venture’s CEO.
That same day, Digital World disclosed that it was under investigation by the SEC and another body, the Financial Industry Regulatory Authority. But no worries. The investigators were just making “preliminary, fact-finding inquiries.”
In fact, Senator Elizabeth Warren had written to the SEC, asking it to investigate Digital World and Trump Media for possible securities fraud. She cited media reports that they had been planning their merger back in May, when Digital World had not yet gone public and was claiming that it had not yet found a merger partner.
She pointed to the recent ups and downs of Digital World’s stock and said the institutional investors who got in at the beginning had profited handsomely, while those who joined the retail stampede would have losses when they sold. She said it looked like “a textbook example” of securities fraud, favoring deep-pocketed friends over the little guy. At least one employee-turned-whistleblower of Trump Media also contacted the SEC to express similar concerns.
Nothing had come of the SEC inquiry by February, when Truth Social was launched. Digital World’s stock price peaked at $97.54 on March 4. Then it fell and never recovered.
Three weeks later, the SEC proposed new rules to “enhance public disclosures and investor protection” in SPAC deals. Virtually all SPAC activity immediately dried up.
Meanwhile, the “preliminary” SEC probe had forced Digital World to suspend the Trump Media merger. Investors were asked to approve an extension of its two-year merger deadline. Those who had taken part in the $1 billion PIPE deal started canceling their commitments.
The midterm elections came and went. No sign of a $1.7 billion Trump Media conglomerate. But there were signs of trouble. A couple of Digital World’s independent directors left. So did its chief financial officer, Luiz Philippe de Orléans e Braganza, a former Brazilian lawmaker who traced his ancestry to the Austro-Hungarian Empire, which once included Brazil. Digital Media’s outside auditor left. Restatements were coming. Money was tight.
Trump Media’s general counsel, Scott Glabe, a former Homeland Security official in the Trump administration, wrote to three congressional committee chairmen, asking their “urgent assistance in investigating egregious conduct and blatant politicization of the Securities and Exchange Commission.” He said the SEC had capriciously delayed Trump Media’s merger with Digital World, harming retail investors and destroying shareholder value.
“The obvious bias of SEC leadership irrevocably taints the agency’s ability to conduct an impartial inquiry,” he wrote. “We therefore seek immediate congressional action to investigate these abuses, ensure documents are preserved, and uphold the rule of law.”
In March, Digital World abruptly fired Orlando, its CEO, explaining only that “unprecedented headwinds” necessitated big changes. Orlando stayed on as a board member. In June, federal prosecutors charged three Florida men with making more than $22 million on illegal insider trading of Digital World’s Trump Media deal. One of the three, Bruce Garelick, had had a seat on Digital World’s board and was said to have shared confidential information with the others.
Finally, in July, the SEC issued a cease-and-desist order that helped to explain what was going on. Back in February 2021, it said, just weeks after the attack on the U.S. Capitol, Trump Media sought out Patrick Orlando to talk business. Orlando had control of another SPAC at that point, and he signed a letter of intent on its behalf to explore taking Trump Media public. He even agreed to be held personally liable for a $1 million breakup fee if the plans fell through.
But then, at the urging of an unnamed investment banker in Shanghai, Orlando shifted his plans for Trump Media to Digital World. The cease-and-desist order quotes from an email the banker sent to Orlando, saying Digital World was “the way to get the most $$$.” The Shanghai banker also gave Orlando a 90 percent stake in Digital World’s sponsor.
The SEC said switching SPACs gave Orlando a conflict of interests. It also gave the SEC a paper trail to follow.
In May 2021, Digital World started preparing for its own IPO, falsely claiming in its registration form that it hadn’t yet chosen a merger partner. Over the summer, the SEC said, Orlando privately told prospective investors that his SPAC was, in fact, working on a merger with Trump Media and that the former president’s company was “a very promising opportunity.”
By the end of August, Trump Media was eager to break the silence and roll out Truth Social. Digital World suggested waiting two or three weeks, and used the time to issue an amended registration statement for its IPO, repeating–again falsely–that it didn’t have a prospective merger partner yet and wasn’t negotiating with anyone.
The SEC ordered Digital World to correct its registration statement, and to pay an $18 million penalty if and when it manages to close the merger with Trump Media. If it hasn’t taken Trump Media public by Sept. 8, 2024, it will face mandatory liquidation and be dissolved. Any money still in trust for Trump Media’s working capital will be returned to the investors.
The order is aimed entirely at Digital World. Trump was not penalized, aside from the fact that his company may go under.
Last week, Digital World filed its long, corrected registration statement with the SEC, laying the groundwork for the ever-imminent merger. It said that $467 million of its PIPE commitments had already been canceled, and that Trump Media planned to give back the remaining $533 million as well.
That leaves next to nothing for the streaming service, the news and entertainment programming, or any of the other dreams of a media empire Trump had back in 2021. But Nunes, the California Republican who gave up his seat in Congress to lead Trump’s start-up, put a philosophical face on it.
A billion-dollar investment in a for-profit enterprise wasn’t what really mattered. “Truth Social aims to be more than a social media platform,” Nunes said. “We aspire to become the centerpiece of a movement, as well as a method for Americans to invest in their freedom.”