Trump Deal Faced Widespread Investor Doubt Before Raising $1 Billion

Irina Baranova

Regulators opened the inquiry after The New York Times reported that the chief executive of Digital World, Patrick Orlando, had talks with representatives of Trump Media as far back as March and had never disclosed that to investors — potentially flouting securities regulations. Regulators are also looking into trading in Digital World securities that happened before the merger announcement.

As the start-up waits for the regulatory scrutiny to wrap up and its merger with Digital World to close, several people close to Mr. Trump have sought to raise a few million dollars from past supporters of his to provide Trump Media with funds to get going, said people who were approached or told about the efforts.

Among those urging Trump donors to invest is Roy Bailey, a lobbyist who is also raising money for a super PAC that is financing Mr. Trump’s political operation as he weighs another presidential campaign in 2024, two people approached by Mr. Bailey said.

One Republican donor, Dan Eberhart, who said he had spent time at the former president’s Mar-a-Lago Club in Florida recently, said he had “been approached by a number of people in Trump’s orbit” about investing in Trump Media. But, Mr. Eberhart said, “my focus is on investing in candidates to help us win back the Senate.”

If regulators approve Trump Media’s merger with Digital World, investors in the $1 billion private deal stand to do well whether or not the company thrives. As part of the deal, investors get to buy shares of Trump Media for roughly 40 percent less than the prevailing market price. If the shares rise, they can profit from the rally. If the shares fall, their chance of losing money is significantly lower than that of the company’s other investors.

The investors also have the right to “short,” or borrow stock to bet on a fall of Trump Media shares, as a further protection against the risk of a price decline.

Vik Mittal, chief investment officer with Meteora Capital, which invested in the Digital World I.P.O., said the PIPE “provides downside protection to PIPE investors if shares of Digital World decline and unlimited upside if the deal works out.” His firm considered going into the PIPE but declined for reasons that Mr. Mittal did not want to divulge.

In the meantime, retail investors have turned Digital World into something of “meme stock,” propping up its share price partly because of its association with Mr. Trump. Shares trade around $80 — much higher than the $10 price of the SPAC’s initial public offering.

Susan C. Beachy contributed research.

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