Donald Trump recently made comments about the financial strength of Truth Social, claiming that the platform has over $200 million in cash and no debt. However, these comments come at a time when the platform’s stock is plummeting and financial disclosures suggest potential financial difficulties.
One expert acknowledges that Trump’s comments on the finances are likely accurate. However, these remarks have sparked an investigation into possible securities fraud, thereby intensifying the scrutiny surrounding the former president and his media business venture in its early stages.
Some experts argue that Trump’s statements may have deceived investors and potentially violated securities law, as the stock has plummeted almost 30 percent since its surge following the merger with Digital Acquisition World Corp. Moreover, the company’s SEC filings have revealed significant financial losses.
In a recent post on Truth Social, the former president, President Trump, expressed his confidence in the platform’s financial stability. He highlighted that the company has an impressive financial standing with over “$200 million in cash and zero debt.” Additionally, he mentioned that his follower count on the platform is growing rapidly, suggesting that Truth Social’s user base is expanding despite concerns raised by financial disclosures.
According to Michael Klausner, a Professor of Law at Stanford Law School, that message could potentially violate the regulations set by the U.S. Securities and Exchange Commission (SEC), which serves as the governing body of the stock market.
According to Klausner, Trump’s depiction of the financial success of Truth Social as an inherent attribute rather than a result of DWAC’s support, along with his claim of a rapidly growing follower count, presents a distorted view of the company’s ability to stand on its own. This misrepresentation could potentially influence investors’ perception under false pretenses, as Klausner explained to Newsweek on Monday.
Klausner cautioned that providing false information about material details can be considered securities fraud, and he also raised concerns about the possibility of “pumping.”
According to Klausner, the term “pumping” is used to describe a statement like the one made by Trump, although it doesn’t necessarily have to come from an insider within the company. This type of statement could potentially be seen as a violation of the Securities Exchange Act of 1934, which regulates the statements made by company owners that could impact investor decisions.
According to the law professor, it is important to note that the phrase “growing fast” used by Trump could be unclear and deceptive unless it is backed by actual growth data. This stands in contrast to the company’s well-documented financial difficulties.
According to Klausner, if the growth of a certain thing is slow and Trump describes it as ‘fast’, there is a possibility for the SEC or a court to make a decision. In such cases, it would ultimately come down to a judgment call.
According to Kin Lo, CPA Professorship in Accounting at UBC Sauder School of Business, prior to the merger with DWAC, Truth Social was facing financial challenges. It had a burn rate of $58 million, while generating only $4.1 million in revenue. Trump’s claims about the platform’s financial situation differ from the actual fiscal reality.
Lo, in an interview with Newsweek, expressed agreement with Trump’s claim about the $200 million in cash and zero debt. He emphasized, though, that Truth Social had limited financial resources prior to the merger.
According to him, as of December 31, 2023, the company had a cash balance of $2.5 million and liabilities amounting to $70.1 million.
Lo noted that before the merger, Truth Social and DWAC were separate entities. The survival of Truth Social seemed to depend on the success of the merger, as stated in its official filings.
According to Lo, the statement indicates that the executives at Truth Social were of the belief that the company would not be able to continue its operations past the end of 2024 unless they successfully completed a merger with DWAC.
After the merger, the financial situation of the company owned by Trump seemed more promising. The cash infusion from DWAC helped to clear debts and served as a much-needed lifeline for the company.
According to Lo, DWAC did not have any actual operations or generate revenues. The company relied solely on the initial stock issuance and any interest or investment income for funding. This indicates a deliberate decision to utilize the financial markets as a means of acquiring capital, rather than pursuing conventional methods of business expansion.
Lo questioned the reasoning behind the merger between the funders of DWAC and the struggling company TMTG. He expressed his curiosity about why they would willingly give TMTG the majority of shares in the merged company. Lo pondered whether there was a legitimate business motive behind this decision or if there was something else at play.
According to Klausner, given the unstable financial situation and the public’s keen interest in its prominent leadership, he believes that if Trump’s assertions do not constitute a violation of the SEC, it is only a matter of time before he violates securities laws by making false claims about Truth Social.
