Digital World Acquisition Corp Stock News and Forecast: Is this the end for DWAC?

• Digital World board members have received subpoenas by federal prosecutors.
• DWAC stock tanked 9.6% to $25.16 on Monday.
• DWAC is down 51% year-to-date amid failure to complete merger.

Digital World Acquisition Corp (DWAC) is in the news again and not for the right reasons. The special purpose acquisition company or SPAC filed an 8-K with the Securities & Exchange Commission (SEC) to announce that a grand jury formed in the Southern District of New York had issued additional subpoenas to the company and its executives. The announcement comes on the heels of earlier filings on June 13 and 16 that all members of DWAC's board had received subpoenas and that the investigation was expanding.

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The word so far is that the grand jury is scrutinizing whether or not the officers behind DWAC had already discussed a merger with former President Donald Trump's Trump Media & Technology Group (TMTG), which owns social media startup Truth Social, before raising funding for DWAC. Doing so would constitute a crime. Shares of DWAC plunged 9.6% on Monday to $25.16.

DWAC stock news

On Monday the Trump Media & Technology Group released a statement concerning Digital World's latest filing.

“TMTG is focused on reclaiming the American people's right to free expression. Every day, our team works tirelessly to sustain Truth Social’s rapid growth, onboard new users, and add new features. We encourage—and will cooperate with—oversight that supports the SEC's important mission of protecting retail investors.”

The main news remains DWAC's filing with the SEC from Friday. Here is the important section:

As previously disclosed in Digital World’s Form 8-K filed on June 13, 2022, Digital World has been informed that it is the subject of an investigation pursuant to Section 8(e) of the Securities Act, with respect to the Registration Statement relating to its Business Combination. Digital World has also received several document requests and subpoenas from the SEC, seeking various documents and information regarding, among other things, Digital World’s due diligence regarding TMTG, communications regarding and due diligence of potential targets other than TMTG, relationships between and among Digital World (and/or certain of Digital World’s officers and directors) and other entities (including ARC Global Investments II LLC, Digital World’s sponsor, and certain advisors, including Digital World’s underwriter and financial advisor in its initial public offering).

"On June 16, 2022, Digital World became aware that a federal grand jury sitting in the Southern District of New York has issued subpoenas to each member of Digital World’s board of directors; the subpoenas seek certain of the same documents demanded in the above-referenced SEC subpoenas, along with requests relating to Digital World’s S-1 filings, communications with or about multiple individuals, and information regarding Rocket One Capital. Additionally, on June 24, 2022, Digital World received a grand jury subpoena with substantially similar requests. These subpoenas, and the underlying investigations by the Department of Justice and the SEC, can be expected to delay effectiveness of the Registration Statement, which could materially delay, materially impede, or prevent the consummation of the Business Combination.

There is a lot to digest there, but with both a federal grand jury and the SEC hot on its tail, it sure seems as if the merger with TMTG is unlikely to happen. Grand juries in the US are typically called when an indictment is probable. 

On June 22 board member Bruce Garelick resigned from DWAC's board, although he said it did not have anything to do with DWAC's policies.

DWAC stock forecast

At this point, the chart below does not matter. The news that TMTG's merger with DWAC might not go through would mean that DWAC's price should drop back to $10. That is where shares of the SPAC were sold last year.

If the merger does not go through, then that $10 is required to be returned to shareholders. Trading above $10 until this grand jury proceeding is concluded just means that traders are making a gamble that indictments fail or do not halt the merger. I, for one, am not ready to make that bet. Resistance sits at $37, and FXStreet thinks DWAC's share price will remain between $10 and $37 until this government investigation is completed.

DWAC daily chart