Why Shares of Digital World Acquisition Corp. Are Falling Today

What happened

Shares of the blank check company Digital World Acquisition Corp. (NASDAQ: DWAC) had fallen nearly 9.5% as of 10:42 a.m. ET today due to ongoing legal concerns that could prevent or significantly delay the company's pending merger with Trump Media & Technology Group (TMTG).

DWAC is a special purpose acquisition company (SPAC) that is planning to merge with and take public TMTG, the parent company of Truth Social, the alternative social media platform backed by former President Donald Trump.

So what

Since announcing its intent to take TMTG public, DWAC has been the target of investigations by the Department of Justice and Securities and Exchange Commission (SEC).

Specifically, the SEC has requested documents related to the business combination with TMTG, certain communications about other acquisition candidates other than TMTG, and relationships between DWAC and other parties involved in the merger such as the SPAC's sponsor and the company's underwriter and financial advisor in its initial public offering.

This morning, DWAC in an SEC filing said it became aware recently that a federal grand jury tasked by the Southern District of New York is subpoenaing each member of DWAC's board of directors.

Among similar information mentioned above, DWAC said that the Southern District is seeking information about a venture capital company called Rocket One Capital, whose website was under maintenance as of this writing. On June 24, DWAC also said it received a grand jury subpoena with similar requests.

The filing added that these subpoenas and investigations are likely to "materially delay, materially impede, or prevent the consummation of the Business Combination" with TMTG.

Now what

A big concern over DWAC is that the merger will not go through due to all of these regulatory concerns, which is a main argument of the hedge fund Kerrisdale Capital and its short thesis regarding DWAC.

After announcing the business combination with TMTG, DWAC's stock soared on the belief that Truth Social and Trump's massive following could create a social media platform that would disrupt mainstream social media. The stock has since retreated significantly.

But even if the merger gets completed, I still am not necessarily buying the hype around Truth Social, either, and would recommend staying away from the stock.

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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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