Court Decision Finds Trump’s Media Venture in Violation of Stock Deal

Lady Justice statue, gavel, and legal books. — Law concept with tilted statue of lady Iustitia or Justitia (Roman goddess of Justice) and books, dark themed with dramatic lighting

A Delaware judge has ruled that Trump Media & Technology Group breached a stock agreement with ARC Global, compelling Trump Media to issue additional shares to ARC Global.

At a Glance

Trump Media breached an agreement with ARC Global, requiring additional shares to be issued.
Vice Chancellor Lori Will found DWAC underestimated the stock due to ARC Global in the merger.
The ruling aligns with upcoming insider share sales, possibly eroding investor confidence.
ARC is entitled to 8,186,345 Class A shares for its 5,490,000 Class B shares.
Trump Media is involved in multiple lawsuits, affecting its market stability.

Delaware Judge Rules Against Trump Media

The Delaware Chancery Court has ruled that Trump Media & Technology Group breached an agreement with ARC Global, leading to a larger stock issuance for ARC Global. This decision resulted from a complicated calculation error by Patrick Orlando, the former CEO of Digital World Acquisition. The ruling comes at a critical time, just as investors, including Donald Trump, are about to have the opportunity to sell their shares.

Vice Chancellor Lori Will found that Digital World Acquisition Corporation (DWAC) underestimated the stock due to ARC Global in the merger process. The court ruling sets a stock-conversion ratio of 1.4911 to 1, which falls in between the ratios proposed by DWAC and ARC. Consequently, ARC Global is set to receive 8,186,345 Class A shares in exchange for its 5,490,000 Class B shares. This discrepancy stemmed from an error by Patrick Orlando, the former CEO of DWAC.

Trump Media breached an agreement with one of the investors that helped the company go public, and must grant the investor a larger share of its stock, a judge rules. https://t.co/dIYd7stdEP

— NBC News (@NBCNews) September 18, 2024

Upcoming Insider Sales and Its Implications

The lock-up agreement that has so far prevented insiders, including Donald Trump, from selling their shares is set to expire on Thursday. This timeframe gives ARC Global the freedom to sell or transfer their shares post-lockup, an action that the ruling supports. With shares currently valued at $16.14 each, any sale by major stakeholders could significantly impact investor confidence and the overall market value of Trump Media.

Trump Media’s market capitalization remains over $3.3 billion, even though it continues to report multimillion-dollar net losses. The company recently warned investors about an imminent sale of over 18 million shares by ARC and United Atlantic Ventures. While Donald Trump, who owns approximately 57% of the company, has publicly announced he has no intention of selling his shares, the looming possibility of large sales could still dampen investor sentiment.

Trump Media stock dips after judge finds company liable for breaching a contract https://t.co/Eez4xfPcCJ

— Quartz (@qz) September 17, 2024

Judicial Orders and Market Reactions

The court’s decision to enforce an immediate release of the stock to ARC Global adds another layer of urgency to resolving this issue. Vice Chancellor Lori Will remarked that what should have been a straightforward exercise in contract interpretation and math was obscured by the parties’ injection of other issues. As a result, ARC Global will receive more than half a million additional shares before the lock-up expires on Thursday.

The case has further complicated the public perception of Trump Media as it faces multiple lawsuits. Trump Media’s value once peaked near $10 billion following its Wall Street debut, but has since encountered a series of legal and financial hurdles. The ruling against ARC on some claims of breach of fiduciary duty still leaves open questions about corporate governance and ethical considerations within Trump Media.

“I have absolutely no intention of selling,” Trump said at a press conference in California on Friday.

With the judgment forcing the release of shares to ARC and the declining stock price, Trump Media faces a turbulent period ahead. The impending legal battles and investor reactions will shape the future landscape for Trump Media’s financial health and market positioning.