A flood of lawsuits is threatening to block a shareholder vote on the long-delayed merger of former President Donald J. Trump's social media company and a cash-strapped shell company.
Two early founders of Trump Media & Technology Group have filed a lawsuit seeking to retain their ownership stakes in the company, the parent company of online posting platform Truth Social. The lawsuit, filed under seal in Delaware Chancery Court on Wednesday by a partnership led by Wes Moss and Andy Litinsky, alleges that Trump Media is seeking to dilute its ownership stake in the company, of which Mr. Trump is a majority shareholder.
The lawsuit seeks an expedited hearing in a Delaware court before Digital World Acquisition Corp. shareholders. on March 22nd to vote on their merger with Trump Media. Digital World is a special purpose acquisition company created to raise money from investors in an initial public offering and use that money to find a private company, such as Trump Media, to purchase.
Mr. Moss and Mr. Litinsky were contestants on Mr. Trump's real estate television show “The Apprentice” and came to him in January 2021 with the idea of starting a social media company.
Former Digital World CEO Patrick Orlando has also filed a lawsuit in Delaware demanding additional shares in the company. And Digital World has filed its own lawsuit in Florida state court, arguing that Mr. Orlando, who was the sponsor of the IPO, was not entitled to additional shares because of his “stinginess, incompetence and general refusal to act” in the company's best interests.
Digital World raised $300 million in an initial public offering in September 2021 and about a month later announced its planned merger with Trump Media, which needs the deal to operate Truth Social. Mr. Trump's social media company has said in regulatory filings that it may not survive without a new source of funding.
In a regulatory filing on Friday, Digital World raised the prospect of rejecting the merger for Mr. Orlando, who remains a board member. Mr. Orlando's group owns about 15 percent of Digital World shares; The majority of the remaining shares are held by around 400,000 private investors. Another filing raised the prospect of possible lawsuits that could delay the merger.
After the merger, Mr. Trump would own 79 million shares of Trump Media. Based on Digital World's current share price of $39, Mr. Trump's stake would be worth $3 billion. The potential merger comes as he needs to find the money to pay a $454 million fine following a New York judge's ruling in a civil fraud case.
By merging with Digital World, Trump Media would not only receive an influx of cash to fund its operations, but also publicly traded stock that can be used to finance acquisitions. As chairman of Trump Media, the former president received the lion's share of shares because his name was important to the company's success. He would be the largest shareholder if the merger with the public company was completed.
Shares of Digital World have soared as Mr. Trump inched closer to the Republican nomination for president and the prospect of a deal being finalized later this month. The stock price has risen even though advertising on Truth Social has been lackluster.
Mr. Orlando's company, which sponsored Digital World, would be Trump Media's second-largest shareholder.
Mr. Orlando's lawsuit comes months after he resigned as chief executive of Digital World and a settlement was negotiated with the Securities and Exchange Commission. Last summer, Digital World agreed to pay an $18 million penalty to resolve allegations that the company had improper merger discussions with Trump Media before its IPO. SPACs should not have a deal before their IPO
In the settlement agreement, Digital World's chief executive, who was not named but identified by his job title, was described by regulators as having been instrumental in the initial contract negotiations. In its lawsuit filed against Mr. Orlando, Digital World said that Mr. Orlando received formal notice from the SEC that an enforcement action may be brought against him.
Mr. Orlando was not accused of wrongdoing. He declined to comment and his attorney did not respond to a request for comment.
Susan C. Beachy contributed to the research.