POLITICO Morning Money: Big game trophies’ feel heat from Trump SPAC probe

Published by Kate Davidson

Washington policymakers have signaled for months that they take a skeptical view of special purpose acquisition companies following an explosion of deals earlier this year. Now, they’re cracking down in perhaps the most high-profile way possible.

The SPAC taking former President Donald Trump's social media startup public said Monday it is under investigation by federal regulators, our Katy O’Donnell reported. Digital World Acquisition Corp. said in a public filing that it had received “preliminary, fact-finding inquiries” in late October and early November from the Financial Industry Regulatory Authority related to a review of trading that preceded the Oct. 20 announcement it was merging with Trump Media.

The company also said it received a request from the SEC for information and documents in early November.

Not a surprise: The move followed a request from Sen. Elizabeth Warren (D-Mass.) for the SEC to look into the Trump SPAC merger. In a letter to Chair Gary Gensler, Warren said Digital World may have violated securities rules by failing to disclose discussions it was reportedly having about merging with Trump Media & Technology Group.

And it isn’t only Trump. Electric-vehicle startup Lucid Motors Inc. said in a regulatory filing Monday that it received a subpoena from the SEC requesting documents related to a $24 billion SPAC deal to take the company public last summer.

Also in the news yesterday was BuzzFeed’s wild public debut following its SPAC merger. The stock briefly spiked more than 35 percent in the morning, before closing down 11 percent.

SPACs — shell companies that acquire private firms for the purpose of selling shares on stock exchanges — have prompted questions from regulators about what value they add to investments, and whether consumers understand the risks involved. The involvement of celebrity backers, from Steph Curry and Serena Williams to Sammy Hagar and Jay-Z, has shined a spotlight on the blank-check companies and led to even more regulatory scrutiny.

If regulators want to deter certain behavior, it makes sense they would start by going after the big fish, said Stephen Pavlick, a policy analyst at Renaissance Macro.

“The ones that have a high-profile sponsor are the right targets,” Pavlick said. “The SEC is looking for these big game trophies to go after, and clearly there’s no bigger elephant in the jungle than Trump.”

(In an odd twist, Rep. Devin Nunes (R-Calif.) separately announced Monday he was resigning from Congress and would become CEO of the new firm, Trump Media & Technology Group, in January.)

Samir Kapadia, government relations representative for the SPAC Association, said the recent moves by the SEC and FINRA reflect the pressure all SPACs, not just the former president’s, have gotten from Capitol Hill this year.

Democrats on the House Financial Services Committee have advanced two bills that would impose new requirements on SPACs, but those measures are unlikely to garner the bipartisan support necessary to clear the Senate. That means lawmakers are looking to regulators, and in particular the SEC, to take action where they cannot.

That the SEC’s move came on the heels of Warren’s letter “is indicative of the close relationship Congress and federal agencies have over regulating SPACs,” Kapadia said. “The SPAC Association was formed for that purpose — to work with regulators to identify challenges and clear inconsistencies so the industry can provide growing companies access to capital.”

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