Foreign. Following the events around the U.S Capitol Building on January 6, 2021, then President Donald Trump was banned from most social media platforms, including Facebook Twitter and YouTube. In response, he created his own social media platform called Truth Social. It's similar to Twitter and functionality and is primarily used by Trump supporters.

Truth Social is not only a way for Trump to communicate with his audience, but also a money-making opportunity. We are not a political Channel and the Wall Street Millennial team has no opinion about the former President's political views or aspirations. But when you take your company public via US back, you become fair game. And that's what Trump has been attempting to do since late 2021 by merging True Social with Digital World Acquisition.

Corp Soon after the merger was announced, the SEC began investigations of potential violations of Securities laws. Separately, three individuals, including one former Dwac director were indicted on charges of insider trading of Dwac shares to the tune of 23 million dollars. The SEC complaints against both Dwac itself and the three alleged Insider Traders give us a rare look into the inner workings of how spax are organized and executed. In this video, we'll look at the legal problems which have thus far prevented the Dwac spec from merging and what this could mean for Trump's Truth Social platform.

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Just a month after Trump left office, he founded the Trump Media and Technology Group or Tmtg For short. They planned to launch three products: a social media platform called Truth Social, a streaming service called Tmtg Plus, and a news channel called Tmtg news Building these ambitious product offerings would require substantial investment and the company was likely to lose money for its first few years, at least despite his immense personal wealth. Trump Pointed outside investment to fund his new Venture Luckily for Trump, this was during the peak of the SPAC Mania giving him an opportunity to raise hundreds of millions of dollars by taking the company public around that same time, a financier named Patrick Orlando was a CEO of two existing spacs. one called Yoon Hong International and the other called Venice Year Capital Acquisition Corp Orlando predicted that Tmtg would gain a lot of investor height and would make the ideal acquisition Target So he began discussions with Tmtg Representatives.

Despite the fact that he was a CEO, he still needed approval from the other directors of his specs to close the deal. Some of them were opposed to merging with Tmtg with his existing specs. unable to acquire Tmtg Orlando bought a controlling stake in a different spec called Digital World Acquisition Corp which at that point had not yet gone public. He appointed directors who were supportive of the Tmtg merger plan in June of 2021.

Orlando Signed a letter of intent to have Dwac enter into an acquisition agreement with Dmtg in the event that this fails to happen. Patrick Orlando would be personally liable for a one million dollar breakup fee in September of 2021. after Orlando signed the letter of intent Dwac ipo'd on the NASDAQ raising 290 million dollars. Sure enough, in October of 2021, just a month after this pack ipo'd they announced the definitive agreement to merge with the Trump Media and Technology Group In the first days after the merger was announced, Dwac's share price surged to an intraday high of 175 dollars as Trump supporters bought the stock before the SPAC IPO Patrick Orlando raised funds by selling interest in the Dwac sponsor shares.

When a spec executes a merger, the sponsor of this pack. In this case, Patrick Orlando receives equity in the combined business worth 20 of the Spec's investment. This compensates the sponsor for organizing and executing the transaction. Orlando Went around asking people to invest in these sponsor shares and told these prospective investors about his plans to merge with Tmtg.

One of these investors was a little-known Florida-based venture capital firm called Rocket One. Capital Rocket One invested 275 thousand dollars into the sponsor shares as a result of Rocket One's investment. The Venture Capital Firm's Chief Strategy Officer Bruce Garelick was appointed to be a director of Dwac. Despite derelict being a director of Dwac, it appears that he wasn't a big fan of the former president.

Shortly after becoming a director, he communicated with his friends and family, saying he now had a front row seat baby sitting job. but it's well worth it for an unconventional investment he had no love for. Donald Trump He just saw this as a way to make a quick buck. As a director, Garelick was privy to Insider information about the planned merger with Tmzg.

As a result of his access to Insider information, he was not allowed to buy shares of this pack on the open market. Of course, Garelick and two other Rocket One insiders did it anyway. When the merger with Tmtg was announced, the Rocket One insiders wasted little time in dumping all their shares, bagging 23 million dollars of ill-gotten games in June of 2023, all men were indicted on charges of Securities fraud and each face up to 25 years in prison. But this insider trading Scandal is the least of Dwac's concerns.

The more pressing issue is fraud allegations against the spec itself, which is thus far prevented it from closing the merger. Thank you! Specs are blank check companies whose sole purpose is to identify a private operating company to merge with. The investors who buy shares in a spec rely on the expertise and efforts of the Stack sponsor to identify a suitable Target over a period of time. One of the key benefits of going public via a SPAC is the lack of due diligence and standardized disclosures.

This allowed fraudulent companies like Nikola and many others to go public. While they may have been exposed during the more thorough IPO process when the spec itself IPOs and raises money from investors, it too has to go through a traditional IPO process. But because it's a shell company with no operations, the due diligence is very quick and easy in Dwac's form. S1 They claimed neither Dwac nor its officers and directors had any discussions with any potential Target companies prior to the IPO as alleged by the SEC.

This statement was false as Dwac CEO Patrick Orlando had extensive negotiations and had already signed a letter of intent with Tmtg months prior to the filing of the S1. Dwac's IPO investors thought they were investing in a blank check company that would seek a currently unknown Target What they were actually investing in was Tmtg, as the deal had already been signed in secret. Thus, Dwac's investors were defrauded as what they bought was materially different from what they were led to believe. The SEC opened an investigation into Dwac and until this issue was resolved, they would not be allowed to close the merger.

This created a desperate situation because Tmtg was and still is burning cash. They need to close the merger to get their hands on the spax money in March of 2023, Dwac fired CEO Patrick Orlando who masterminded the alleged fraud in July of 2023. They settled with the SEC and agreed that they would pay an 18 million dollar penalty if the merger with Tmtg is closed. Following the settlement, Dwac shareholders voted to extend the merger deadline until September 8 2024, but it's unclear whether the deal can close.

The 18 million settlement to the SEC would have to come from Dwac's sponsors. It's unclear whether or not they'll be willing or able to Fork over so much cash. Thus far, Tmtg has funded the development and launch of the Truth Social app by raising debt from private investors. These loans can convert into shares.

Following the close of the SPAC merger, investors were willing to lend Tmtg with the expectation that they'll be able to convert them into shares at some point. the more uncertain the merger becomes, the less sustainable this debt financing will be. To be fair. If worse comes to worse, Trump himself could inject 18 million dollars into the Dwac sponsor to pay the penalty and close the transaction upon closing.

Tmtg will gain access to about 1 billion dollars from both the cash and the specs trust as well as an Associated pipe transaction. but will one billion dollars of investment be enough to turn Truth Social into a profitable business? Foreign to Trump, Truth Social has become somewhat of a phenomena and has already posted bigger numbers than all other platforms, including Tick Tock Twitter Facebook and the rest. Trump has tens of millions of supporters across the U.S many of whom are sympathetic to his criticisms of big Tech censorship, but we also have to consider the network effect. A social media platform is only useful to the extent that a lot of your friends and other people you care about are also using the platform.

So unless all of your friends happen to be Trump supporters, you're probably better off just staying on Facebook or Twitter. As of April 2023, More than a year after the app's launch, it is estimated that the platform has two million monthly active users. Despite Trump's claims to the contrary, Truth Social has less than one percent of the monthly active users as Tick Tock, Twitter or Facebook. Another problem is monetization.

Truth Social's big selling point is a lack of content moderation. If you go on Truth Social, pretty much all you'll see is a bunch of pro-trump content. As you might expect, the content posted on Truth Social can be extremely provocative. In some cases, the posts have become so extreme that even Truth Social itself has enforced at least limited content moderation For Better or For.

Worst, most large corporations don't want their ads anywhere close to this type of content, as they fear that it could damage their brand image. We can take some Clues from Rumble another Free Speech Social media platform which went public by merging with us back in 2021. Similar to Truth Social, most of the content is on the right wing of the political. Spectrum In what most people would consider.

Fringe In the second quarter of 2023, Rumble had 44 million monthly active users and generated 25 million dollars of Revenue. This represents a paltry 2.27 cents per user at an annualized rate. If we assume that Truth Social will make a similar amount of Revenue per user, they would be making less than 5 million dollars of Revenue per year. This likely won't be enough to even keep the lights on.

The murky cap of Dwac is complicated to calculate because there is an earn out for the original Tmtg owners, including Trump himself based on the share price and the number of shares sold in the pipe is partly contingent on the earn outs, but when the deal closes, there will likely be around 200 million shares outstanding. This would give the company a market cap of about three and a half billion dollars based on their small user base and likely monetization problems. This valuation is absurd to say the least. The share price is likely being propped up by Trump supporters and has little relation to the company's fundamental value.

Alright guys, that wraps it up for this video. What do you think about Truth Social? Do you think it'll be a viable social media platform? Or was it just a way for Trump and his associates to make a quick Buck Let us know in the comments section below. As always, thank you so much for watching and we'll see you in the next one! Wall Street Millennial Signing out.