Why Is Digital World (DWAC) Stock Up 12% Today?

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Digital World Acquisition (NASDAQ:DWAC) stock is rising today on a positive update regarding its regulatory problems. The special purpose acquisition company (SPAC) is best-known for its partnership with Trump Media & Technology Group (TMTG). Since joining forces with the Truth Social parent company, though, DWAC stock has struggled significantly. Shares have been plagued by constant regulatory probes and leadership turnover. Meanwhile, former President Donald Trump’s erratic behavior and questionable future have made it difficult for DWAC stock to rise, even during favorable market conditions.

Of course, two days ago, the company did report that it may be on the verge of settling its current investigation with the U.S. Securities and Exchange Commission (SEC). This may sound like good news. However, it doesn’t mean that DWAC stock is on the verge of recovering, or that now is the time to buy shares.

Let’s take a closer look at this recent development and assess what investors can expect.

What’s Happening With DWAC Stock?

It has been months since Digital World has had a positive catalyst to report. On top of everything else, the continuous delaying of its actual merger hasn’t helped DWAC stock.

Today, though, the promise of finally settling its legal problems is finally pushing shares up. As of this writing, DWAC is climbing more than 12% despite some volatility in early morning trading. However, even settling its on-going investigation isn’t likely to make this company a stable investment.

According to reports, Digital World has offered to settle with the SEC for $18 million. The ongoing regulatory procedure has certainly helped push DWAC down, as it has delayed the merger. So, at first glance, it might be easy to assume that settling will allow the deal to proceed. But this is where it becomes necessary for investors to dig a little deeper.

For one, there is a history of tension between DWAC and its merger target that has complicated the deal, as hinted in recent regulatory filings. That means that, even if the SEC accepts the offer — which it still has yet to do (the final agreement is still subject to approval) — the settlement is not a guarantee the merger will actually close.

Per The Washington Post:

“The merger deal, which was originally set to conclude last year, is still frozen due to the SEC investigation, and Digital World has pushed to extend the deadline for another year past its Sept. 8 target. In the filing, Digital World said that ‘pursuant to its electronic mail, [Trump Media] believes it is currently only bound under the Merger Agreement through Sept. 8, 2023.’”

That date — Sept. 8 — is of crucial importance. If the merger does not close by then, Digital World is set to liquidate and return $300 million to investors. For that reason, the pressure to conclude the merger is ever-increasing as September draws near.

Why It Matters

The SEC settlement news could certainly end up being a positive catalyst for DWAC stock. However, investors should be careful not to be too optimistic, even if shares keep rising from here.

After all, this company is still on the brink of being delisted from the Nasdaq. Even if DWAC can keep its spot, the threat of the merger failing to close also remains. All told, shares of this company have too many red flags for any sensible investor to consider betting on the stock.

On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Samuel O’Brient has been covering financial markets and analyzing economic policy for three-plus years. His areas of expertise involve electric vehicle (EV) stocks, green energy and NFTs. O’Brient loves helping everyone understand the complexities of economics. He is ranked in the top 15% of stock pickers on TipRanks.

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