SPAC Tied to Trump Media Says Early Talks Were Not ‘Substantive’

For nearly a year, regulators have been examining whether a proposed merger involving the social media company backed by former President Donald J. Trump broke securities laws.

To save the deal ahead of a December deadline, lawyers for Digital World Acquisition Corp., the special purpose acquisition company that plans to merge with Trump Media & Technology Group, recently met with regulators to plead their case. Trump Media stands to get $300 million if the deal is completed, money it would use to fund its Truth Social media platform.

Digital World’s case could hinge on the meaning of the word “substantive.”

Under S.E.C. rules, SPACs are not allowed to hold discussions with potential merger partners before they go public, and if they do, the talks must be disclosed. Failure to do so could constitute securities fraud.

When it filed its papers to go public in September 2021, Digital World said there had been no “substantive discussions, directly or indirectly” with any potential merger targets — a standard disclosure in SPAC deals. A month later, it merged with Trump Media.

The New York Times reported in October 2021 that Digital World might have violated securities laws by discussing a possible merger with Trump Media before going public. In November, regulators began investigating whether Digital World had misled investors by stating it had not engaged in merger discussions before the I.P.O.

Digital World eventually acknowledged that there were discussions between representatives of the two sides before its initial public offering.

But last month, lawyers for Digital World met with S.E.C. officials to argue that those talks were too preliminary to meet the threshold for disclosure — and therefore did not violate any rules, according to three people briefed on the matter who spoke on the condition of anonymity to discuss a private meeting. Moreover, the lawyers said Trump Media was considering other options at the time, including a merger with another SPAC associated with the backers of Digital World, so the talks with Mr. Trump’s company did not qualify as substantive.

Special purpose acquisition companies can be in a precarious position when they “affirmatively say that no discussions had taken place” in a regulatory filing, said J.W. Verret, a professor at Antonin Scalia Law School at George Mason University. He added that the Digital World investigation appeared to hinge on “whether the preliminary discussions were material.”

The lawyers’ argument could be undercut by the emergence of a whistle-blower in August who said the discussions were much more advanced than Digital World was letting on.

William Wilkerson, a former executive of Trump Media, told regulators that he had been a firsthand witness to talks between the parties in 2021, according to documents reviewed by The New York Times. In the documents, provided to The Times by Mr. Wilkerson’s legal team, he said he “witnessed substantive communications” between the companies about a potential merger “in violation of S.E.C. regulations.”

Mr. Wilkerson provided regulators with dozens of documents and photographs in support of his claim, including a log of conversations between representatives of the two companies beginning with an initial phone call on Feb. 18, 2021, that were also reviewed by The Times. Patrick Orlando, the chief executive of Digital World and the main backer of the SPAC, did not return requests for comment. The S.E.C. declined to comment. Trump Media, in a statement, said it had created “a culture of compliance” and a “world-class team to lead Truth Social.”

Separately, federal prosecutors in Manhattan are investigating the accuracy of Digital World’s disclosures to investors, although they appear more focused on an unusual surge in trading in the shares of Digital World just before it announced its merger with Trump Media.

Prosecutors are trying to determine whether some of those trades were made by a small group of people who had knowledge of discussions about the deal before they became public, including employees of a small Miami-based venture capital firm called Rocket One Capital.

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A spokesman for the U.S. attorney’s office in Manhattan declined to comment.

The inquiries into the talks between the two sides ahead of Digital World’s initial public offering present the gravest danger to the deal. The S.E.C. has yet to approve the merger registration statement that was filed by Digital World in May and is considering issuing a “stop order” that would effectively block the deal, according a regulatory filing.

At the meeting last month, lawyers for Digital World tried to impress upon the regulators that it was not uncommon for early deal talks to take place between representatives of SPACs and potential merger targets — especially because Mr. Orlando was involved with promoting several SPACs, said the people briefed on the matter.

Securities lawyers said presentations like the kind made by Digital World could be helpful in trying to persuade regulators not to file any civil charges or by presenting them with mitigating circumstances to consider.

“I have been in those meetings,” said Andrew Calamari, a lawyer with Finn Dixon & Herling and a former director of the New York office of the S.E.C. “The aim is to begin a dialogue.”

If the S.E.C. does not clear the merger, Digital World may be forced to liquidate on Dec. 8 and return to investors the $300 million it raised through its public debut.

Digital World has struggled to get its shareholders — a vast majority of whom are retail investors — to approve a measure that would give the companies until next September to complete the merger.

If the merger does goes through, it could be a financial bonanza for Mr. Trump, who will own nearly 80 percent of the company. Planning for Trump Media began in earnest just days after the Jan. 6, 2021, attack on the U.S. Capitol by some of Mr. Trump’s supporters.

Mr. Wilkerson, who filed his whistle-blower claim on Aug. 28, was dismissed from his job by Trump Media on Oct. 13. The company said in the termination letter that he had violated his employment agreement after discussing his claims with The Miami Herald and The Washington Post. Both publications had reported earlier on the whistle-blower’s complaint.

Lawyers for Mr. Wilkerson did not make him available for an interview but said in a statement that “Mr. Wilkerson has faced deliberate and transparent retaliation by Trump Media.”

Some of the documents provided by Mr. Wilkerson — which were reviewed by The Times — included notes, photographs and video clips taken by Mr. Wilkerson and others of the meetings between representatives of the two companies. The meetings were held at Mr. Trump’s Mar-a-Lago residence and club in Palm Beach, Fla., and his golf club in Bedminster, N.J. Mr. Wilkerson also provided information on early investors in Trump Media.

Also included is a copy of a highly flattering letter from Mr. Orlando to Mr. Trump sent on June 14, 2021. In the letter, Mr. Orlando recalls a recent meeting he had with Mr. Trump at his club in Bedminster, and his first meeting with him on Feb. 24, 2021, at Mar-a-Lago.

Mr. Orlando praised the former president for his “true brilliance in marketing and public relations” and “big picture thinking.”

He wrote: “After we met, it was clear to me that I was unaware of the extent of your brilliance.”

Kirsten Noyes contributed research.