Avoid Digital World Acquisition

Published on

Whitney Tilson’s email to investors suggesting to avoid Digital World Acquisition Corp (NASDAQ:DWAC); Tether fails to dispel mystery on Stablecoin’s crucial reserves.

Get The Full Walter Schloss Series in PDF

Get the entire 10-part series on Walter Schloss in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q3 2021 hedge fund letters, conferences and more

Avoid Digital World Acquisition

1) In my October 22 e-mail, I warned my readers away from the shares of Digital World Acquisition (DWAC), a special purpose acquisition company ("SPAC") that had announced a deal to partner with a company owned by former President Donald Trump, Trump Media & Technology ("TMTG"), to launch a social media company called TRUTH Social. I wrote:

To be clear, my view that this is one of the stupidest things I've ever seen and that this stock is going to implode, likely within days, has nothing to do with my political views. As I wrote in my October 4 e-mail, "Many people let their partisan views affect all sorts of nonpolitical decisions – including financial ones," which is a recipe for disaster.

It's simply based on the fundamentals (of which there are essentially none; TRUTH Social is nothing more than an idea at this point) and the long, dismal financial track record of those who've done business with the former president.

If you want to support him, there are far better ways to do so than buying DWAC.

It was a prescient warning. That day, the stock spiked to a peak of $175 but closed at $94.20, and it's been mostly downhill ever since: The stock closed yesterday at $51.07.

I am now even more convinced that the stock should be avoided at all costs, as I think the U.S. Securities and Exchange Commission ("SEC") is likely to block the merger, at which point DWAC will quickly trade back down to its cash balance of $10 per share.

If the SEC acts, the reason it will cite is that there were discussions between DWAC's CEO and representatives of Trump before DWAC's initial public offering ("IPO"), which is forbidden. The details were exposed in this article in yesterday's New York Times: Trump's Media Company Is Investigated Over Financing Deal. Excerpt:

One day in April, a group of men gathered on a videoconference call to discuss a deal to bankroll former President Donald J. Trump's planned media company.

Among the participants, according to two people familiar with the call, were Mr. Trump's representatives and the chief executive and a future board member of Digital World Acquisition, a so-called blank-check company that would announce the deal with Mr. Trump six months later.

But the real reason, I suspect, if the SEC blocks the deal, is that it dislikes the recently announced $1 billion private investment in public equity ("PIPE"), which allows the investors in the PIPE (mostly hedge funds, I assume) to rip the faces off of retail investors by buying the stock for a 40% discount to the market price and immediately dumping it in the market for a quick 67% gain. Bloomberg's Matt Levine covered the details in his column on Monday: The Trump SPAC Did a PIPE. Excerpt:

There are two basic ways to think about raising a PIPE here:

1. Go out to institutional investors, explain the business model, introduce them to the experienced management and technical teams, give them financial projections and let them pressure-test them, and generally get investors comfortable with a high 10-digit fundamental valuation for this company.

2. Go out to institutional investors and say, "look if you buy stock at $30, you can sell it to some retail rubes at $40."

On Saturday, TMTG and DWAC announced a billion-dollar PIPE, and if you read the announcement very carefully, I think you can tell which approach they took...

Levine heaped even more scorn on this in yesterday's column: The Trump SPAC Pitch Is Weird.

In summary, everything about this company and deal is a total scam, carefully engineered to rip off retail investors and/or Trump supporters.

As such, mark my words, there's no way the SEC allows this to go through...

Tether Fails To Dispel Mystery On Stablecoin's Crucial Reserves

2) I've warned my readers many times about Tether (USDT), a stablecoin used to facilitate trades in the crypto market. The company's latest disclosures further reinforce my belief that it's likely a Ponzi scheme: Tether Fails to Dispel Mystery on Stablecoin's Crucial Reserves. Excerpt:

The latest financial disclosure from Tether, which serves as a controversial foundation for much of the cryptocurrency market, didn't shed any more light on where its reserves are held.

Tether had assets totaling at least $69 billion as of Sept. 30, according to an assurance from Cayman Islands-based Moore Cayman. That includes $30.6 billion in commercial paper and certificates of deposit, $7.2 billion in cash, almost $1 billion in money market funds, and $19 billion in Treasury bills.

Here's another related article: Regulators Sound the Alarm on Stablecoins.

Best regards,


P.S. I welcome your feedback at [email protected].