Former President Donald Trump is facing a new lawsuit alleging that he attempted to "drastically dilute" the value of stock shares held by co-founders of his social media platform, Truth Social, depriving them of massive profits.
Citing a court filing, CNBC reported that the lawsuit, filed by the partnership United Atlantic Ventures (UAV), accused Trump and other leaders of the Trump Media & Technology Group (TMTG) of engaging in manipulative tactics to dilute UAV's minority stake in the media company.
Trump Media & Technology Group and Digital World Acquisition Corp. Merger
The lawsuit filed in a Delaware court comes ahead of the planned merger between TMTG and Digital World Acquisition Corp. This move would make the combined entity's shares publicly traded.
If Digital World shareholders approve the merger on March 22, Donald Trump's 90% stake in TMTG could be valued at over $3 billion, considering Digital World's current share price.
Another lawsuit, filed in Chancery court on Thursday by an investment vehicle linked to former Digital World Chairman and CEO Patrick Orlando, seeks to block the merger unless it receives a bigger number of shares from the combination than proposed by Digital World, according to Reuters.
Donald Trump and Other TMTG Bosses Deprive Them of the 'Deal'
The UAV was founded by Andy Litinsky and Wes Moss, who initially pitched the idea of creating TMTG to Donald Trump in February 2021 after the former president was banned from Facebook and Twitter following the January 6 Capitol riot.
TMTG eventually created and launched Truth Social, the social media platform the former president uses most of the time to communicate with the public.
The UAV claimed that Trump and the other bosses had schemed to deprive them of a stake in the TMTG that could be reduced from 8.6% to less than 1% due to its board's approval of an eight-fold rise in the total number of authorized shares in the company, from 120 million shares to 1 billion shares.
The Washington Post reported that UAV alleged that Trump recently tried to "drastically dilute" the partnership's stake as part of an "11th hour, pre-merger corporate maneuvering" scheme designed to increase the authorized stock's amount from 120 million shares to 1 billion.
"Former President Donald J. Trump... is causing TMTG to not only dispute UAV's established right to 8,600,000 shares or 8.6% of TMTG's issued and outstanding stock, but also attempting to drastically dilute UAV's interests in connection with an impending merger," the UAV said in its motion.
"There is no legitimate business purpose for the Billion Share Authorization or the creation of non-voting stock in the face of the pending Merger, particularly because any unissued TMTG stock will be cancelled in the Merger," it added.
The UAV noted that the only plausible reason for TMTG to authorize the massive block of stock and create non-voting stock was "so Trump could dilute UAV and take the lion's share of merger consideration for himself."
Earlier this month, the US Securities and Exchange Commission (SEC) gave the green light for TMTG to merge with the blank-check acquisition company Digital World. The SEC clearance will pave the way for Digital World shareholders to vote to complete the merger on March 22.
Since Digital World agreed to merge with TMTG in October 2021, it has encountered some challenges in its bid to complete it. The transaction has been the target of the Department of Justice and the SEC's investigations. Leadership changes and board restructuring have also been made.
According to CNN, Trump's possible return to Wall Street could make him a fortune as he would own a stake that could be worth billions at current prices if the merger goes through.
In Digital World's February 14 regulatory filing with the SEC, it said the former president is set to hold a dominant position in the newly combined company, owning roughly 79 million shares.
Digital World also said Trump may divest his stake in Truth Social and end his involvement in its management based on how his presidential bid goes.
"The attempt here is to deprive them of the deal... It's not like they went out and bought a lottery ticket," Christopher Clark, the lawyer for UAV, said of his clients, as CNBC reported.
"They actually went out and did the work, they created Truth Social, and now the beneficiary of that, Donald Trump, doesn't want to pay," he added.
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