On Wednesday, a lawsuit accused former President Donald Trump of attempting to significantly reduce the value of stock shares in his social media company owned by the firm's co-founders, potentially denying them hundreds of millions of dollars in profits.
United Atlantic Ventures (UAV), the partnership involved, claims that Trump Media & Technology Group (TMTG) engaged in last-minute maneuvers that were wrongful and aimed at diluting UAV's minority stake in the media company, according to a court filing.
The Upcoming Merger with A Shell Company
The Delaware Chancery Court's lawsuit precedes the merger of Trump Media & Technology Group and shell company Digital World Acquisition Corp. (DWAC), which, when approved next month, would make Trump's TMTG share surge to 90%, worth over three billion dollars, based on its current share price.
A Lawsuit Blocking the Merger
As per a Reuters report on Thursday, an investment entity overseen by former DWAC Chairman and CEO Patrick Orlando filed a lawsuit in Chancery court aiming to halt the merger unless it allocated a greater number of shares from the merger than DWAC suggests. The news noted that TMTG and DWAC filed a lawsuit against Orlando and his Arc Global Investments II in Florida, accusing him of attempting to gain an unfair advantage through extortion.
Trump Media's History
UAV, a partnership between Andy Litinsky and Wes Moss, both contestants on Trump's television program "The Apprentice," proposed the concept of Trump Media to Trump in February 2021, following his ban from Twitter and Facebook after the January 6 Capitol riot.
TMTG later developed and introduced Truth Social, the social media platform primarily utilized by Trump for communication with the public.
The merger plan coincides with Trump, the top contender for the Republican presidential nomination, being required to pay over five hundred million dollars in civil judgments in New York. These stem from trial rulings involving business fraud and defamation against writer E. Jean Carroll.
The Delaware Lawsuit
Christopher Clark, the attorney representing UAV in the partnership's Delaware lawsuit against TMTG, stated that the aim is to deny the co-founders their rightful share of the deal, emphasizing that the co-founders who created Truth Social deserve fair compensation for their efforts. Clark highlighted that it is not a new story, likening the situation to Trump's history of disputing bills from contractors and lawyers.
The motion in the Delaware lawsuit alleges that Former President Donald J. Trump is disputing UAV's claim to 8.6% of TMTG's stock and attempting to significantly reduce UAV's stake ahead of an upcoming merger, less than 1% due to the TMTG board's approval of increasing the total authorized shares from 120 million to 1 billion.
UAV's motion argues that there is no valid reason for the Billion Share Authorization or the issuance of non-voting stock, especially considering that any unused TMTG stock will be nullified in the merger. The motion suggests that the main reason for TMTG's move to authorize a large new stock block and introduce non-voting stock is to allow Trump to dilute UAV's share and claim the majority of the merger benefits for himself.
UAV's lawsuit against TMTG, aimed at stopping the dilution attempt, is currently sealed in the Delaware court, but HUAV has filed a public motion asking for the case to be expedited.
Merger Disclosure
In October 2021, TMTG and DWAC, a special purpose acquisition company, disclosed their intention to merge. The merger faced delays of over two years due to investigations by the SEC and the Department of Justice, among other reasons. However, earlier this month, the SEC approved the registration statement, signaling approval for the SPAC merger. DWAC shareholders are set to vote on the merger's approval on March 22. DWAC seemed aware of the potential lawsuit, as indicated in a February 14 SEC filing.
The DWAC filing mentioned that UAV had informed both TMTG and a holder of TMTG Convertible Notes about its potential action to stop the Business Combination. TMTG told DWAC that it firmly believed UAV and Mr. Cohen had no anti-dilution or consent rights regarding the Business Combination. If such claims were deemed valid, settling them could negatively impact the Combined Entity and its shareholders economically and in terms of voting power regarding finances and dilution.
