It takes a brave investor to work with Donald Trump.
The former president’s hotels and casinos have declared bankruptcy six times. Trump’s short-lived plane crashed. He paid millions of dollars to settle multiple lawsuits to run an unlicensed “university” that the conservative National Review called a “large-scale fraud”. Then there’s the looming criminal prosecution of the Trump Organization for tax fraud.
For all that, business built around Trump’s famous ability to provoke millions of people online must seem like a good bet for those who poured money into supporting the company behind his rival Twitter, social truth.
Now that too has run into trouble as an investment of more than $1 billion has faltered amid shareholder reluctance and a federal investigation into whether Trump Media and Technology Group broke the law in its dealings with a company set up to save money.
As is often the case with the former president, it is not immediately clear what is going on.
Trump launched Truth Social in February after he was thrown from me Twitter for inciting violence after he lost the presidential election. He previously ran a blog, out of Donald Trump’s office, but it shut down less than a month later because almost no one read it.
Truth Social did better as a way for Trump to stoke his ire against his enemies, white nationalists and other far right to say what they can’t on Twitter. But it has failed to achieve the kind of reach that other social media platforms have.
Trump has about 4 million followers on Truth Social compared to 80 million on Twitter, in part because his access has been restricted by a Google Play Store ban for failing to remove posts that make physical threats and incite violence.
The Truth Social received just 11.5 million visits in July compared to 7 billion visits to Twitter, according to online analytics firm Likeweb. Last month, Trump Media reported that it lost $6.5 million in the first half of this year. It is also said to owe it to a web hosting company.
This has raised questions about whether investing in Trump Media was a sound business decision or whether it was likely money being dumped into the pit of the former president’s ongoing political campaign.
Michael Allrog, a law professor at New York University who specializes in the type of funding Trump is now seeking, said there is no evidence that Trump Media has a strategy to become a money-making institution.
“There are a lot of questions about whether this is a viable business. Are you actually going to make any money? There are a lot of good reasons to be skeptical about that. It’s very clear that this was just this thing that slapped them together so quickly,” he said.
Trump Media has been relying on a large injection of cash from a form of shell company that was created only to raise money for another company through a merger with it, known as a Special Purpose Acquisition Company (Spac).
Digital World Acquisition Corp. was created as Spac a year ago with no obligation to invest in Trump’s media business. Shareholders have bet that their investment will increase in value when Digital World creates a merger company. That’s exactly what happened when the deal with Trump Media was announced just seven weeks later, sending Digital World’s stock price up tenfold.
But earlier this month, shareholders failed to meet a deadline to approve the merger, depriving Trump Media and Truth Social of about $1.3 billion.
In addition, the Securities and Exchange Commission and federal prosecutors are blocking any merger while investigating Trump Media’s dealings with Digital World after questions were raised about the speed of announcing their partnership.
Ohlrogge said the Securities and Exchange Commission is likely to look into whether Trump made, or came close to, an agreement with Digital World before Spac began selling shares without telling potential investors, in violation of financial regulations.
If they were already in advanced talks with Trump Spac and didn’t tell this to early investors, it could be a relatively clear violation of securities laws. “There is relatively good reason to suspect that this might be the case,” he said.
Meanwhile, Digital World’s stock price has fallen sharply, from a high of about $100 to around $23, although anyone who bought out of the IPO would double their money.
Ohlrogge said it was not clear why shareholders would not agree to the merger by the September 8 deadline. He said some might not have noticed. Others may withhold approval until Trump resolves issues with the Securities and Exchange Commission.
“What makes more sense for Trump is to settle it with the Securities and Exchange Commission, do whatever they want and try to make them happy in order to get them to let the merger move forward. However, this kind of approach does not appear to be Trump’s preferred method for most legal dealings. “It looks like he’s fighting with his teeth and nails,” he said.
Some shareholders were concerned about the wisdom of Trump’s financial dealings once they found out where their money was going.
Digital World has now called a special shareholder meeting next month to extend the deadline for approval of the merger by a year. He. She remains unclear How it will be after Spac acknowledged earlier this year that Truth Social “may never generate any operating revenue or ever generate profitable operations.”
Jennifer Stromer Galley, a professor in the School of Information Studies at Syracuse University and author of the Presidential Campaign in the Internet Age, said Truth Social is an effective tool for Trump to stay in touch with his base, which is somewhat amplified by journalists reporting on his statements. But she wondered if it could go beyond being a political campaigning tool to operate as a business.
One of Trump’s formidable assets has always been his name. Because of his branding, he got an instant base of people from whom Truth Social could start expanding. But then you have to expand after that, because that’s probably not enough to keep this project going. “I don’t see how Truth Social expands beyond that relatively narrow, hard-core rule that is Trump’s bread and butter circle,” said Stromer Galley.
“If I were an investor in telecoms, media, and technology companies, I would be skeptical about the actual business that Truth Social is in. When the head of a company can’t put together a coherent business case or legal arguments what do they do, is that really where you want to put your money?”