Two hedge funds sell stakes in Trump SPAC firm DWAC after merger news, big stock price riseby Dan Mangan, Yun Li · CNBC
- At least two hedge funds sold their stakes in Digital World Acquisition Corp. after that SPAC firm announced plans to merge with former President Donald Trump's planned social media platform.
- The sell-off by Lighthouse Investment Partners and Saba Capital Management came as DWAC saw a huge rise in the price of its stock.
- "I knew that for Saba the right thing was to sell our entire stake of unrestricted shares, which we have now done," founder Boaz Weinstein said in an e-mailed statement cited by Bloomberg.
- The sell-offs reflect the risk of being associated with Trump, who was impeached after being accused of inciting the Jan. 6 Capitol riot.
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Lighthouse Investment Partners shed its holdings in Digital World Acquisition after learning of the deal with Trump's venture, the fund told CNBC.
Lighthouse had owned 3.2 million shares, or 11.2% of the special purpose acquisition company, which trades on NASDAQ, according to a Sept. 30 regulatory filing.
"Lighthouse was not aware of the pending merger and no longer holds unrestricted shares of the SPAC," the fund said.
Asked if Lighthouse profited from its DWAC investment, the firm said it would not comment further.
The second hedge fund, Saba Capital Management, also sold off its stake, according to reports by The New York Times and Bloomberg.
"I knew that for Saba the right thing was to sell our entire stake of unrestricted shares, which we have now done," founder Boaz Weinstein said in an e-mailed statement cited by Bloomberg.
"Many investors are grappling with hard questions about how to incorporate their values into their work. For us, this was not a close call," Weinstein wrote.
Saba Capital did not return repeated requests for comment by CNBC.
Weinstein's wife, Tali Farhadian Weinstein, earlier this year lost a bid to win the Democratic nomination for Manhattan District Attorney. The current Manhattan DA, Cyrus Vance Jr., is prosecuting Trump's main company, the Trump Organization, and its chief financial officer on criminal charges related to an alleged scheme to avoid paying taxes on executive compensation.
Saba had owned a 9.3% stake in the SPAC, or 2.4 million shares, according to a Sept. 3 filing
The sell-off by the two funds came as DWAC saw a huge rise in the price of its stock Thursday on the heels of the merger news.
DWAC shares spiked more than 100% on Friday after the stock more than quadrupled in price in the previous session.
The sales by the funds reflect the possible risk of being associated with the highly controversial Trump, despite the potential financial return on investment.
As president, Trump was impeached twice and accused of inciting the deadly Jan. 6 Capitol riot, when his supporters stormed the building during a joint session of Congress. The Trump Organization also faces pending criminal probes beyond the case lodged by Vance, who is retiring later this year.
There is no public indication that Trump or his company holds any shares of DWAC. The former president is not listed on disclosures as an officer or major investor in the SPAC.
However, Trump likely would benefit from ownership in the merged company's shares once the transaction is completed. But there's no guarantee that the current sky-high valuation of the SPAC would be maintained after that merger.
SPACs, also known as blank-check companies, are created to raise capital from public equity markets and then use that cash to merge with a private company that has or will have an actual operating business.
The stock of that merged firm then will trade under the stock ticker created by the SPAC.
Investors in SPACs as a rule do not know the identity of the other firm that will be targeted for merger.
Among the other hedge funds listed in regulatory filings in September as major shareholders of DWAC were D.E. Shaw, which owned 8%, or 2.4 million shares, and ARC Capital, which held a near 18% stake, or 6.6 million shares.
Other funds that held stakes as of last month, before the merger was announced, were Highbridge Capital Management, Lighthouse Investment Partners, K2 Principal Fund, ATW Spac Management, Boothbay Fund Management and RG Capital Management.
Highbridge Capital Management and ATW Spac Management declined to comment when asked if they retained stakes in DWAC. The other hedge funds didn't immediately respond to CNBC's requests for comment.
Another fund listed as a major investor in DWAC is ARC Global Investments II, LLC.
The managing member of ARC Global is listed in a regulatory filing as Patrick Orlando, who is also the CEO of DWAC.
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In an 8-K filing with the Securities and Exchange Commission on Thursday, DWAC said it had entered into an agreement and plan of merger with DWAC Merger Sub Inc., which is a wholly owned subsidiary of DWAC, and with Trump Media & Technology Group and ARC Global Investments II.
Trump Media & Technology Group, Trump's so-far-unlaunched company, said in an announcement Wednesday that its "mission is to create a rival to the liberal media consortium and fight back against the 'Big Tech' companies of Silicon Valley, which have used their unilateral power to silence opposing voices in America."
DWAC's sharp rise in price on the extraordinarily high volume of trades suggests that small-time retail investors are fueling the stock's surge.
A top post on the WallStreetBets message board Friday featured what looked like the user's equity portfolio, touting daily gains of over $10,000 from betting on DWAC. The post, which called the former president "Daddy Trump," quickly drew more than 800 comments.
Anthony Scaramucci, the hedge fund founder who briefly served as Trump's communication director in the White House, told CNBC's "Squawk Box" on Friday that he hopes the SPAC continues surging in price, because, "The more it goes up, the less likelihood Donald Trump is running for president in 2024."
"So I'm rooting for that SPAC," said Scaramucci, who is now a Trump adversary.
"He was part of the insurrection," he added. "You know, I personally think he's a domestic terrorist. I want the guy out, as far away from politics as possible."