The shell company that's set to merge with Donald Trump's new social media platform is reportedly under investigation by federal regulators, according to a Monday financial filing. The troubling news, however, was not enough to stop Republican Rep. Devin Nunes to announce that he is retiring from representing his California district in Congress to head Trump's new enterprise on the same day.
Nunes will start as CEO of Trump Media & Technology Group in January, CNBC reported on Monday. Also on Monday, it was reported that "TRUTH Social" – the social media network Trump unveiled back in October to "stand up to the tyranny of Big Tech" which is part of the parent company Nunes agreed to head — is now under investigation by the Securities and Exchange Commission (SEC).
Trump's company agreed to go public through a special purpose acquisition company (SPAC), which is a publicly-traded shell company set up with the explicit purpose of acquiring privately-held companies – a process that allows managers of the said private company to circumvent the conventional initial public offering process. Investors purchase shares in SPACs without knowing what private ventures the shell company will acquire.
In the days immediately following the announcement of the merger, Digital World, TRUTH social's SPAC, stock price skyrocketed over 1,650%.
But later in October, Digital World reported that it received "certain preliminary, fact-finding inquiries" from the SEC, according to The Washington Post. The SEC has also reportedly been looking into the company's board of directors and investors, as well as communications between Digital World and Trump Media & Technology Group.
"According to the SEC's request, the investigation does not mean that the SEC has concluded that anyone violated the law or that the SEC has a negative opinion of DWAC or any person, event, or security," Digital World maintained on Monday.
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At the same time, the Financial Industry Regulatory Authority (FINRA), Wall Street's nongovernmental independent regulator, is also probing whether the agreement accorded with federal law. Digital World likewise stated that the investigation "should not be construed as an indication that FINRA has determined that any violations of Nasdaq rules or federal securities laws have occurred."
According to The Wall Street Journal, Trump met with Digital World Chief Executive Patrick Orlando well before the SPAC deal was struck, back in March. If Trump and Orlando held any substantive discussions regarding the merger prior to their SPAC launching, then both men may have violated federal law.
News of federal scrutiny comes just days after Trump Media & Technology Group and Digital World announced that the SPAC was raising $1 billion from a "diverse group of institutional investors" through PIPE, or private investment in public equity. The identities of these investors remain unknown.
It isn't the first time TRUTH Social has come under scrutiny.
Back in October, TRUTH Social came under fire when Beta users of the platform noticed that its code shared an uncanny resemblance to that of Mastodon, another alternative social network known for its emphasis on "free speech."