Trump's Media Empire Crumbles as Lockup Ends, Exposing Risky SPAC Deal

The once-soaring valuation of former President Donald Trump's media startup, Truth Social, has plummeted in recent months, and the impending end of a lockup period could trigger a wave of insider selling that further erodes the company's worth. As the SPAC deal that took the company public faces scrutiny, the fate of Trump's media empire hangs in the balance, with the November election potentially playing a pivotal role in its future.

Unraveling the Risky SPAC Deal Behind Trump's Media Venture

The Rapid Rise and Fall of Truth Social's Valuation

When Trump Media & Technology Group Corp., the parent company of Truth Social, went public through a special-purpose acquisition company (SPAC) merger in March, it was hailed as a promising venture. However, the company's stock has since shed nearly $6 billion in value, with the share price plummeting from its peak of $40.58 in July to just $17.97 as of Thursday. This dramatic decline has wiped out over $4.1 billion in paper wealth for Trump, who owns roughly 60% of the company.

The Looming Lockup Expiration and Potential Insider Selling

The primary driver of this stock price collapse is the impending expiration of a lockup agreement that has prevented the company's largest shareholders, including Trump, from selling their shares. As this lockup period ends as soon as September 19, investors are bracing for a potential flood of sales from insiders, including former Apprentice contestants Andy Litinsky and Wes Moss, who co-founded the company, as well as Patrick Orlando, whose fund sponsored the SPAC merger.

Regulatory Scrutiny and Lawsuits Surrounding the SPAC Deal

The SPAC deal that took Trump Media public has been an outlier even within the SPAC boom, which has faced increased regulatory scrutiny. Digital World Acquisition Corp., the SPAC that merged with Trump Media, settled fraud charges with the SEC last year, and the regulator has since sued Orlando, accusing him of misleading investors. Additionally, a series of lawsuits related to Trump, the stakes of Orlando's ARC and Litinsky's and Moss's United Atlantic Ventures in the company, and the rules surrounding the lockup restrictions have further complicated the situation.

The Uncertain Future of Trump's Media Empire

The fate of Trump Media's shares may be closely tied to the results of the upcoming November election, which currently appears to be a tight race. Experts suggest that a loss for Trump in the election could significantly impact the value of the company, as its success has been largely driven by the former president's name and brand. With the company's underlying economics struggling to justify its over $3 billion valuation, the end of the lockup period could expose the true fragility of Trump's media venture.

Lessons from the SPAC Boom and the Risks of Celebrity-Driven Investments

The Trump Media saga serves as a cautionary tale for investors drawn to high-profile, celebrity-backed ventures. The company's rapid rise and fall highlight the risks associated with SPAC deals, which often lack the same level of regulatory scrutiny as traditional IPOs. As the SPAC boom has cooled, the Trump Media case underscores the importance of scrutinizing a company's underlying fundamentals and not relying solely on the star power of its backers.