By Former President Donald Trump was accused in a lawsuit on Wednesday of trying to “drastically dilute” the value of stock shares in his social media company held by the firm’s co-founders, potentially depriving them of hundreds of millions of dollars in profits.
The partnership, United Atlantic Ventures, alleges that Trump Media & Technology Group engaged in “wrongful 11th hour … maneuvering” to dilute UAV’s minority stake in the media company, a court filing says.
The Delaware Chancery Court lawsuit comes in advance of the planned merger of TMTG with a shell company called Digital World Acquisition Corp., which would result in the shares of the combined entity being publicly traded.
If DWAC shareholders approve the merger next month, Trump’s 90% stake in TMTG could be valued at more than $3 billion, given DWAC’s current share price.
On Thursday, an investment vehicle controlled by former DWAC Chairman and CEO Patrick Orlando sued in Chancery court to block the merger unless it receives a larger number of shares from the combination than DWAC proposes, Reuters reported.
The news service noted that TMTG and DWAC on Tuesday sued Orlando and his Arc Global Investments II vehicle in Florida, claiming that he is trying to “obtain a windfall by extortion.”
UAV is a partnership of Andy Litinsky and Wes Moss, who initially pitched Trump the idea of creating Trump Media in February 2021, after the former president was banned from Twitter and Facebook following the deadly Jan. 6 Capitol riot.
Both Litinsky and Moss were contestants on Trump’s television show “The Apprentice.”
TMTG later built and launched Truth Social, the social media platform that Trump uses almost exclusively to communicate with the public.
The planned merger comes as Trump, who is the leading candidate for the Republican presidential nomination, has been ordered to pay more than $500 million in civil judgments in New York, related to trial verdicts for business fraud and the defamation of writer E. Jean Carroll.
“The attempt here is to deprive them of the deal,” said Christopher Clark, the lawyer for UAV in the partnership’s Delaware lawsuit against TMTG.
“It’s not like they went out and bought a lottery ticket,” Clark said of the co-founders. “They actually went out and did the work, they created Truth Social, and now the beneficiary of that, Donald Trump, doesn’t want to pay.”
“Not a unique story, unfortunately,” Clark said, referring to Trump’s infamous practice of contesting bills from contractors and lawyers.
CNBC has requested comment from spokesmen for Trump, TMTG and DWAC about the lawsuit, which was first reported by The Washington Post.
“Former President Donald J. Trump … is causing TMTG to not only dispute UAV’s established right to 8,600,000 shares or 8.6% of TMTG’s issued and outstanding stock, but also attempting to drastically dilute UAV’s interests in connection with an impending merger,” a motion in the Delaware suit says.
That motion claims that UAV’s current 8.6% stake in Trump’s company would be diluted to less than 1% as a result of the TMTG board approving an eight-fold increase in the total number of authorized shares in the firm, from 120 million shares to 1 billion shares.
“There is no legitimate business purpose for the Billion Share Authorization or the creation of non-voting stock in the face of the pending Merger, particularly because any unissued TMTG stock will be cancelled in the Merger,” the motion by UAV says.
“The only plausible reason for TMTG to authorize this massive new block of stock and create non-voting stock is so Trump can dilute UAV and take the lion’s share of merger consideration for himself,” the motion says.
UAV’s lawsuit against TMTG, which is seeking injunctive relief against the dilution effort, is sealed for now in the Delaware court, which as a rule initially keeps complaints off its public docket until the parties agree on any necessary redactions.
But a motion by UAV asking a judge to expedite the suit is public. That motion details the claims in the complaint.
In October 2021, TMTG and DWAC, which is a so-called special purpose acquisition company, announced a plan to merge.
That merger was delayed for more than two years by investigations launched by the U.S. Securities and Exchange Commission and the Department of Justice, among other factors.
But earlier this month, the SEC said the merger’s registration statement was effective, essentially green lighting the SPAC merger. DWAC shareholders are scheduled to vote on potential approval of the merger on March 22.
DWAC appears to have known this lawsuit might be coming, according to a Feb. 14 filing with the SEC.
“UAV also communicated to TMTG and to a holder of TMTG Convertible Notes that it may pursue an action to enjoin consummation of the Business Combination,” that DWAC filing said.
“Although TMTG advised DWAC that it firmly believes that neither UAV nor Mr. Cohen possess any anti-dilution or consent rights with respect to the Business Combination, if such claims involve the issuance of additional shares in connection with the Business Combination and such claims were determined valid, settlement of such claims could have a material adverse effect from a monetary and dilutive impact (both from an economic and voting standpoint) on the Combined Entity and its stockholders,” the filing said.
— Additional reporting by CNBC’s Jim Forkin.
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