Donald Trump (right) and producer Andy Litinsky (left) attend the Comedy Central Roast of Donald Trump at the Hammerstein Ballroom on March 9, 2011 in New York City.
Michael Kovac | Wireimage | Getty Images
Former President Donald Trump was accused in a lawsuit Wednesday of attempting to “drastically dilute” the value of shares in his social media company held by the company’s co-founders, potentially depriving them of hundreds of millions of dollars in profits would.
The United Atlantic Ventures partnership accuses Trump Media & Technology Group of engaging in “unlawful 11th-hour maneuvers” to dilute UAV’s minority stake in the media company, a court filing says.
The lawsuit in Delaware Chancery Court comes ahead of TMTG’s planned merger with a so-called shell company Digital World Acquisition Corp., which would result in the combined company’s shares becoming publicly traded.
If DWAC shareholders approve the merger next month, Trump’s 90 percent stake in TMTG could be worth more than $3 billion, given DWAC’s current stock price.
Reuters reported that on Thursday an investment vehicle controlled by former DWAC chairman and CEO Patrick Orlando filed a lawsuit in Chancery Court seeking to block the merger unless it receives a larger number of shares from the merger, as DWAC suggests.
The news service noted that TMTG and DWAC sued Orlando and its Arc Global Investments II vehicle in Florida on Tuesday, claiming he was trying to “make money through extortion.”
UAV is a partnership of Andy Litinsky and Wes Moss, who first pitched Trump on the idea of starting Trump Media in February 2021, after the former president was banned from Twitter and Facebook following the deadly Capitol insurrection on January 6th.
Both Litinsky and Moss were contestants on Trump’s television show “The Apprentice.”
Donald Trump attends the “Celebrity Apprentice” red carpet event at Trump Tower on January 5, 2015 in New York City.
Mike Pont | FilmMagic | Getty Images
TMTG later built and launched Truth Social, the social media platform Trump uses almost exclusively to communicate with the public.
The proposed merger comes as Trump, the front-runner for the Republican presidential nomination, was ordered in New York to pay more than $500 million in civil judgments related to court rulings on charges of white collar fraud and defamation of writer E. Jean Carroll.
“The attempt here is to get them out of the deal,” said Christopher Clark, UAV’s attorney 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 founded Truth Social, and now the beneficiary of that, Donald Trump, doesn’t want to pay.”
“Unfortunately, it’s not a unique story,” Clark said, referring to Trump’s infamous practice of disputing bills from contractors and lawyers.
CNBC has reached out to spokespeople for Trump, TMTG and DWAC for comment on the lawsuit, which was first reported by The Washington Post.
“Former President Donald J. Trump…not only causes TMTG to challenge UAV’s established right to 8,600,000 shares, or 8.6% of TMTG’s issued and outstanding shares, but also seeks to harm UAV’s interests in connection with a pending merger “drastically dilute it,” the Delaware lawsuit states.
That filing claims that UAV’s current 8.6% stake in Trump’s company would be diluted to less than 1% if the TMTG board approves an eightfold increase in the company’s total authorized shares from 120 million shares to 1 billion shares.
“In light of the pending merger, there is no legitimate business purpose for the Billion Share Authorization or the creation of non-voting shares, particularly because all unissued TMTG shares will be canceled upon the merger,” UAV’s filing states.
“The only plausible reason for TMTG to authorize this huge new block of shares and create non-voting shares is so that Trump can dilute UAV and keep the lion’s share of the merger considerations for himself,” the filing says.
UAV’s lawsuit against TMTG, seeking an injunction against the dilution efforts, is sealed for now in the Delaware court, which typically initially keeps complaints from the public record until the parties agree on any necessary redactions.
But a motion from UAV asking a judge to expedite the lawsuit is public. This application details the claims in the complaint.
In October 2021, TMTG and DWAC, a so-called special purpose acquisition company, announced a merger plan.
That merger was delayed for more than two years by investigations by the U.S. Securities and Exchange Commission and the Department of Justice, among other things.
But earlier this month, the SEC declared that the merger’s registration statement was effective, essentially greenlighting the SPAC merger. DWAC shareholders are scheduled to vote on possible approval of the merger on March 22.
Read more about CNBC’s politics coverage
According to a February 14 filing with the SEC, DWAC appears to have known this lawsuit could be coming.
“UAV also notified TMTG and a holder of TMTG convertible notes that it may commence an action to order consummation of the business combination,” the DWAC filing states.
“Although TMTG advised DWAC that it firmly believes that neither UAV nor Mr. Cohen has any anti-dilution or consent rights with respect to the business combination, to the extent that such claims include the issuance of additional shares in connection with the business combination and such claims exist “If the Settlement of these claims, if deemed valid, could have a material adverse monetary and dilutive impact (both from an economic and voting perspective) on the combined company and its shareholders,” the filing states.
—Additional reporting by CNBC’s Jim Forkin.
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2024-03-01 02:51:00
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