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While Trump Media & Technology Group (NASDAQ:DJT) has encountered some choppy conditions following its business combination with a special purpose acquisition company (SPAC), DJT stock is still trading high enough to activate an earnout. That said, skepticism is clouding the long-term outlook for this unusual enterprise.
According to Bloomberg, as part of the social media firm’s SPAC deal, Trump Media insiders will “divvy up 40 million new shares.” The condition is that DJT stock needs to trade above $17.50 per share “for 20 days out of a 30-day period.” With shares trading a bit under $36 as of this writing, the earnout conditions may be achieved by tomorrow.
To be sure, DJT stock has plummeted from its high of $79.38 seen on March 26. However, it’s unlikely for shares to drop further in less than a day.
For original investors — including former President Donald Trump — this earnout is a significant reward. However, it will be negative for ordinary stakeholders because of the inherent dilutive effect. Nevertheless, a lingering question remains about Trump Media & Technology Group’s ownership structure.
TMTG is involved in a legal dispute with ARC Global Investments II and United Atlantic Ventures. Aside from Trump, these two enterprises are the biggest shareholders of DJT stock. The dispute involves allegations of inaccurate share allocations and deliberate obstruction of the SPAC deal.
Naked Short Selling Accusations Add to Drama Over DJT Stock
As if DJT stock needed more controversy, Trump Media also recently sounded an alarm bell. Specifically, CEO Devin Nunes claims that DJT stock could be the target of naked short selling.
Earlier this month, TMTG put a spotlight on garden-variety short selling. On its website, the company FAQ section advised shareholders to hold their DJT stock in a cash account at their brokerage firm rather than a margin account. TMTG also urged shareholders to “opt out of any securities lending programs, or move their shares to the company’s own transfer agent.”
Short selling involves the practice of borrowing securities from a broker and immediately selling them in the open market. Should the stock value decline, these bearish traders then buy back the cheapened securities and return the obligated amount back to the broker. The difference is then pocketed as profit.
Meanwhile, per Investopedia, naked short selling is the illegal practice of selling shares for shorting purposes without first acquiring or securing said shares.
CEO Devin Nunes recently wrote a letter to the Nasdaq chair alleging that data on DJT stock was “indicative of unlawful trading activity.” One of the potential participants he identified in the letter, Citadel Securities, did not take kindly to the accusation.
Why It Matters
On paper, Trump is barred from selling DJT stock until the expiration of a six-month lockup period, per Barron’s. However, the former president “could seek a waiver” from the board at TMTG. Notably, the board includes “one of his sons and several former members of his administration.”
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the biedexmarkets.com.com Publishing Guidelines.