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The whole point of a special-purpose acquisition company, as we have written over and over and over again, is opacity: the ability to elide disclosing all of the dirty little secrets that inevitably pop up in all of the tedious paperwork companies must do in order to go public the old-fashioned way. But, and in a way both befitting of and anathema to the man taking a blank check for his non-existent fascist Facebook, it is transparency that may be the self-proclaimed deal artist’s undoing.

We are, of course and unfortunately, writing about the former president of the United States, a man who both has never had an unexpressed thought and who doesn’t believe in things like conflicts of interest or the right of his lesser to know what he and his underlings are doing. Donald Trump’s SPAC deal was already in a bit of jeopardy because the president and the SPAC’s creator, Patrick Orlando, were apparently all-but-in-agreement on a deal before the SPAC had even gone public, rendering it both not a blank check company and potentially illegal. But those weren’t the only loose lips surrounding Digital World Acquisition Corp., if the warrants trading is anything to go by.

About 350,000 warrants of Digital World traded in the first two days. But on the third day — Oct. 4, a week after Digital World and Trump Media & Technology Group entered into formal talks that were not disclosed at the time — trading in the warrants exploded. More than 2.5 million changed hands that day…. Data compiled by FactSet shows that, on average, about 200,000 warrants in Digital World were traded daily during the three weeks before the merger was announced. That’s in line with how warrants in other SPACs traded after decoupling from their shares.

But there were unusual spikes in the trading of Digital World’s warrants: 2.5 million on Oct. 4, 900,000 on Oct. 7 and one million on Oct. 20, the day of the merger announcement, which happened after the market closed for the day.

Securities and Exchange Commission chief Gary Gensler is having a good look at all of that vis-à-vis DWAC, but as regards SPACs in general, he’s seen quite enough.

“I believe the investing public may not be getting like protections between traditional IPOs and SPACs,” Mr. Gensler said in a speech for the Healthy Markets Association. He said he has asked SEC staff for proposals to close that gap by focusing on requirements around disclosure, marketing practices and liability for sponsors and other gatekeepers to SPAC deals….

The special merger process allows companies going public to make revenue and profit projections that aren’t allowed in traditional IPOs, often helping them to achieve a higher valuation. Companies in SPAC deals are allowed to make those forward-looking statements because SPACs are regulated as public companies, differentiating the SPAC process from the regular IPO process.

Mr. Gensler said such forecasts go against a fundamental tenet of U.S. securities laws, which seek to block transaction insiders from using marketing practices to create buzz about a company before required disclosures reach investors.

"SPAC target IPOs often are announced with a slide deck, a press release, and even celebrity endorsements,” Mr. Gensler said, which can move the SPAC’s shares significantly based on incomplete information. “It is essential that investors receive the information they need, when they need it, without misleading hype.”

SEC’s Gary Gensler Seeks to Level Playing Field Between SPACs, Traditional IPOs [WSJ]
A Surge in Trading Preceded Trump’s SPAC Deal [NYT]

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