At least two hedge funds sold their shares in Digital World Acquisition Corp. after that SPAC firm announced plans to merge with former President Donald Trump’s planned social media platform.
Lighthouse Investment Partners sold its holdings in Digital World Acquisition after learning of the deal with Trump’s Venture, the fund told CNBC.
Lighthouse owned 3.2 million shares, or 11.2%, of the special purpose vehicle that trades on NASDAQ, according to a government filing dated September 30th.
“Lighthouse was unaware of the upcoming merger and no longer holds unrestricted shares in SPAC,” the fund said.
When asked if Lighthouse had benefited from its DWAC investment, the company said it would not comment.
The second hedge fund, Saba Capital Management, also sold its stake, according to reports from The New York Times and Bloomberg.
“I knew it was right for Saba to sell our entire stake in unrestricted shares, which we did now,” said founder Boaz Weinstein in an email quoted by Bloomberg.
“Many investors struggle with difficult questions as to how they can incorporate their values into their work. This was not a short decision for us,” wrote Weinstein.
Saba Capital has not responded to repeated requests for comment from CNBC.
Weinstein’s wife, Tali Farhadian Weinstein, lost an application for the Democratic nomination for Manhattan District Attorney earlier this year. Current Manhattan Attorney Cyrus Vance Jr. is suing Trump’s principal company, the Trump Organization, and its chief financial officer on criminal charges related to an alleged plan to avoid paying taxes on executive compensation.
According to a filing on September 3, Saba owned 9.3% of the shares in SPAC, or 2.4 million shares
The two funds sold off when DWAC posted a huge surge in its share price on Thursday following the merger news.
DWAC stock rose more than 100% on Friday after the stock price more than quadrupled in the previous session.
The fund’s sales reflect the potential risk of being associated with the highly controversial Trump, despite the potential financial return.
As President, Trump was twice indicted and accused of instigating the deadly January 6th Capitol riot when his supporters stormed the building during a joint session of Congress. The Trump organization is also facing pending criminal investigations beyond the case of Vance, who will retire later this year.
There is no public indication that Trump or his company owns shares in DWAC. The former president is not listed as an officer or principal investor in the SPAC in any disclosure.
However, Trump would likely benefit from owning the shares in the merged company once the deal is complete. However, there is no guarantee that the SPAC’s current sky-high rating will be maintained after this merger.
The social media app is developed by the Trump Media and Technology Group (TMTG).
Rafael Henrique | LightRakete | Getty Images
SPACs, also known as blank check companies, are formed to raise capital from the public stock markets and then use that cash to merge with a private company that has or will have an actual business.
The shares of this merged company will then be traded under the stock market ticker created by SPAC.
Investors in SPACs generally do not know the identity of the other company being considered for a merger.
Other hedge funds listed as major shareholders of DWAC in regulatory filings in September included DE Shaw, which owned 8%, or 2.4 million shares, and ARC Capital, which owned nearly 18%, or 6.6 million Shares held.
Other funds that held stakes in the last month prior to the announcement of the merger were Highbridge Capital Management, Lighthouse Investment Partners, K2 Principal Fund, ATW Spac Management, Boothbay Fund Management, and RG Capital Management.
Highbridge Capital Management and ATW Spac Management declined to comment when asked if they would keep shares in DWAC. The other hedge funds did not immediately respond to CNBC’s requests for comment.
Another fund listed as a major DWAC investor is ARC Global Investments II, LLC.
The executive member of ARC Global is listed in a government filing as Patrick Orlando, who is also the CEO of DWAC.
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In an 8-K filing with the Securities and Exchange Commission on Thursday, DWAC announced that it had entered into an agreement and merger plan with DWAC Merger Sub Inc., a wholly owned subsidiary of DWAC, and Trump Media & Technology Group ARC Global Investments II.
Trump Media & Technology Group, Trump’s not-yet-founded company, said in an announcement on Wednesday that its “mission is to create a rival for the liberal media consortium and fight against Silicon Valley’s ‘big tech’ companies, who have used their one-sided power to silence opposing voices in America. “
Trump was banned from Twitter, his favorite social media platform, and Facebook earlier this year after he was accused of sparking the Capitol invasion.
The sharp rise in DWAC’s share price due to the unusually high trading volume suggests that small private investors are fueling the rise in the stock.
The stock’s ticker is among the most popular mentions on Reddit’s WallStreetBets, the website that sparked GameStop and AMC’s so-called “meme stock” price spikes earlier this year.
A top post on the WallStreetBets forum on Friday revealed what the user’s stock portfolio looked like and announced daily winnings of over $ 10,000 from wagering on DWAC. The post calling the former president “Daddy Trump” quickly drew more than 800 comments.
Anthony Scaramucci, the founder of hedge funds who served briefly as Trump’s communications director in the White House, told CNBC’s Squawk Box on Friday that he hopes the SPAC will continue to rise in price because, “The more it goes up the less likely it is that Donald Trump will run for president in 2024. “
“So I’m defending this SPAC,” said Scaramucci, who is now an opponent of Trump.
“He was part of the uprising,” he added. “You know, I personally think he’s a local terrorist.