Criminality piles-up around Truth Social. Is DJT the first political stock?

By Dave Wieneke | in , Criminal Law, Politics, Public policy | 5 Apr 2024 | No Comments

Though Mr. Trump and Trump Media are not the focus of these federal charges, an investigation by financial watchdog FINRA, federal agencies (FBI, SEC, DHS) and the Miami Police’s financial crimes unit has resulted in charges against the group that acquired it. That revealed a potential trail of ill-gotten gains leading to Trump Media and the family of the F.B.I. informant charged with falsely claiming that President Biden and his son Hunter accepted bribes.

 

Last Summer, the Securities and Exchange Commission filed insider trading charges against several people who traded on knowledge about Digital World Acquisition Corp’s planned acquisition of Trump Media & Technology Group. The Commission also negotiated a settlement for related fraud, in which DWAC’s leaders allegedly entered dialogue to acquire Trump Media, which insider traders learned of before DWAC went public. (First there was fraud, then there was insider trading by others who management made aware of it.)

The Blues Brothers explain SPACs
Special Purpose Acquisition Corporations (SPACs) allow investors to enter the market with management and funding to acquire assets and establish an ongoing business.

If you recall the Blues Brothers song Rubber Biscuit, it provides a good description of a SPAC in its musical explanation of a Wish Sandwich. Here, let Dan Akroyd break it down.

The lyrics introduce the Wish Sandwich, that is…“where you have two slices of bread and you wish you had some meat!”  SPACs are just managers and money owned by investors who wish they had a company. But a SPAC is no more a company, than a Wish Sandwich is a meal. Such an enterprise must go find a company to buy, or return its investment in failure.

By not yet being in business, SPACs enter public markets with far less review and disclosure than a going concern would. Some might try to use this as a way to slip dodgy firms into public markets without the scrutiny of the Initial Public Offering process.  That’s why there’s a rule that SPACs can’t have pre-existing acquisition plans or communications.

DWAC signed certifications that such prior communications had not happened, even though they had. The alleged insider trading based on this information tipped off authorities, which resulted in amended filings and an agreement to pay SEC fines.

Wait, earn a 15x return in just a month?
Patrick Orlando, the CEO of the DWAC SPAC, reportedly told prospective investors of the plan to buy Trump Media in June 2021. He met with Michael Shvartsman and had “near-daily” calls with him and Anton Postolnikov before the DWAC public listing was announced in September 2021. Shvartsman, the owner of an online payment company, is also a former manager of a nightclub in Edmonton with reputed Russian mob ties.

The men pitched Anton Postolniko to join them as an early investor. Postolniko is the nephew of long-time Russian official Aleksandr Smirnov, and the owner of Caribbean-based Paxum bank, which promoted itself as a financial conduit for online adult entertainment.

If the name Aleksandr Smirnov seems familiar, it’s because he was the FBI informant who was recently charged with falsely telling FBI agents that President Joe Biden and his son had taken bribes. So, it is noteworthy that someone who would benefit from insider information from Trump World, would have an uncle lying to support a narrative to hurt Trump’s political rival around the same time.

The insider trading began, and soon the investigation.
Around September 2, 2021, the accused traders bought hundreds of thousands of shares of Digital World Acquisition Corp at a strike price of around ten dollars. It concluded the next month when the Trump Media acquisition was announced, and shares spiked to $175 per share. Postolniko banked around $22 million in profits, and Shvartsman realized $18 million in gains; regulators took note.

The Washington Post detailed how financial watchdog FINRA, the Securities and Exchange Commission, the Department of Homeland Security, the FBI, and Miami Policy cooperated in a cross-border investigation that led to charges by the SEC.

Tag, you’re it!
The investigation slowed the approval of the Trump Media acquisition. However, as Trump Media burnt through cash, it received a two-million-dollar lifeline in 2022 from an unexpected source. The ES Family Trust provided a promissory note to cover Truth Social’s debts. Documents obtained by the Guardian identify Anton Postolnikov as the trust’s owner.

This is as close as the public story gets to Trump Media. One of the people charged with trading on insider information about its acquisition apparently provided financing to save Truth Social. That person happened to have an uncle lying to investigators about bribery allegations. At such a moment, it may be customary for someone to yell, ” Tag, you’re it.” The grift now seems to have come full circle.

Ignore the chatter; follow cash and criminality.
Most will agree that little of the investment in Truth Social is about its business. With revenue of just $4.1 million, its income is about what a single Shake Shack restaurant receives in a year. Of course, Shake Shack is profitable and likely in business next year. With Mr. Trump’s eagerness to cash out of Truth Social, there are real going concern issues that would make most investors worry it might be headed the way of Trump University, the Trump Foundation, the Trump Network, and the Trump Institute.

It might make better sense to think of Truth Social’s stock as an interface to provide unregulated support directly to Trump, the man, who can then invest it in his campaign, his personal legal bills, or whatever he likes. Reuters describes the Trump Media stock as a Master Class in political workarounds. It’s not a business stock; it seems more like a political shell company that receives support directly from the markets.

Just as DWAC worked around market rules to bring Trump Media public without the scrutiny of an IPO, the resulting firm seems to be an attempt to duck election financing for supporters to fund Trump absent direct FEC regulation. Perhaps it is the first political stock.

Such support might be from the MAGA faithful who could buy an overpriced Trump Bible, a set of Trump sneakers or Trump wine. Or, it could be from issue-based lobbyists who might otherwise buy Trump club memberships or book a floor in his hotel to conceal gifts or graft away from scrutiny. However, these examples are tiny compared to the influence of cash directly from equity markets.

Stock for funding political outcomes.
Using a stock listing as a channel for dark money into electoral politics seems like exactly what campaign finance law would seek to prevent. If we imagine the price of the Trump Media stock, $DJT, losing value as the election margins tighten, that lower price would, in fact, offer influence over a candidate at a bargain and when they are most desperate.

The Saudi Royal Family, a Russian oligarch, or whatever rich group you like least could pour billions into such a stock. The candidate could sell their embargoed shares at a profit as its price ascends. There might be a meme buying frenzy, allowing the influencers to exit with gains. But even at a loss which, this could be partly recouped as a business investment gone wrong while still getting the influence of meddling.

Might doesn’t make right; neither should wealth.
Laws preventing insider trading and fraud broadly prevent market manipulation. Likewise, laws preventing unregulated funds from entering campaigns from unknown or foreign sources prevent political manipulation.

The charges filed so far have a familiar vibe of limited-scale grift. But a stock that can be used as a conduit of influence for dark money might scale up to something our markets and political system cannot long endure.

There is a new kind of risk here. That’s why the Federal Election Commission and SEC must jointly regulate and if necessary, force a divestment to prevent candidates from taking unregulated donations of any nature. We may find that listing a company, or making oneself a meme stock isn’t compatible with scrutiny required for serving in high office.

Unprecedented often means under-regulated
I’ve grown tired of hearing our times are unprecedented. Too often, what they are is unregulated. This word, “unprecedented,” should be a call for action, not wonder. Enforcing rules is a habit that has fallen out of favor, except for the least privileged.

Without government regulation by mutual consent, we would live Hobbesian lives in a natural state of struggle against the strong — living lives that are nasty, brutish, painful, solitary, and short. Civilization seeks to organize by a principle higher than might. In political life, as it’s constructed in America, isn’t concentrated wealth anything but distilled might?

If we are to prevent equity markets, oligarchs, and meddling sovereign funds from gaming the US electoral process, we might start with some ideas from John McCain, who nearly made the GOP the party of getting money out of politics. Walter Shapiro wrote a stirring tribute to his effort to clean up political funding, concluding…” John McCain will be deeply missed as our political life grows meaner, smaller, and more corrupted by big money.”