The Truth Social merger and public offering that could rescue Donald Trump from his financial straits has attracted dueling lawsuits.
Mergers are a big event in a corporation, especially when they can result in new access to the public markets or a major payoff. That means they are also ideal moments of leverage for anyone with a basis to hold up the deal. In private practice, I once worked on a case where a company pleaded guilty to a criminal charge and paid six times the statutory maximum penalty just to get a merger done — and then handed the government a recitation it could use to prosecute company officers, which because it was a statement by a corporation and not an individual, could not be cross-examined. (Thankfully, since Crawford v. Washington revived the confrontation clause, it’s much harder now to enter corporate plea allocutions into evidence in a criminal trial).
All of that is the background to understand why the Truth Social merger and public offering that could rescue Donald Trump from his financial straits has attracted dueling lawsuits over disgruntled former executives trying to hold up the deal:
On Tuesday, Digital World and Trump Media sued Digital World’s former chief executive, Patrick Orlando, and its sponsor, Arc Global Investments II, in a Florida court, alleging that Orlando had threatened to block the merger to “obtain a windfall by way of extortion” and accusing him of “avarice [and] incompetence” that had caused “extensive reputational harm.”
On Thursday, Arc filed its own lawsuit, telling a Delaware chancery court that Digital World, its current chief executive, Eric Swider, and three board members had miscalculated Arc’s stake in a way that would deprive it of more than 2 million shares. In a motion to expedite, Arc’s attorneys accused Digital World of “gamesmanship” and “strong-arming tactics” related to the dispute. Arc, a subsidiary of the Shanghai-based investment firm Arc Capital, provided Digital World’s early funding and is managed by Orlando, whom Digital World’s board fired last year. . . . The co-founders’ lawsuit is led by Andy Litinsky and Wes Moss, who met Trump as contestants on his reality show “The Apprentice.”
The price of Digital World’s stock dropped almost 20 percent on the news. It’s hardly the first time that Trump has been accused of shafting his business partners. The good news for Trump is that there’s nothing here that shouldn’t be negotiable at the right price — and that’s the kind of conflict in which Trump is most at home. Also, brinksmanship is a two-way street, given that Orlando and Arc are suing to get a bigger slice of the merger pie — and if there’s no pie, there’s no slice. The bad news is that his adversaries can read the papers, too, and they must know that he really needs this deal and needs it now — so a payoff won’t come cheap.