Understanding Why Trump Cannot Pledge His Shares in Truth Social Post-IPO

As the company behind Truth Social prepares to go public, questions arise regarding the shareholding commitments of its high-profile backers, including former President Donald Trump. Truth Social is propelled by the special purpose acquisition company Digital World Acquisition Corp. DWAC, and there is considerable speculation about the potential movements and constraints on the shares owned by Trump in the post-IPO period.

Regulatory Constraints on Pledging Shares

When a company goes public, there are certain restrictions imposed on insiders and major shareholders regarding the transacting of their shares. These rules are intended to maintain market fairness and prevent manipulation. Typically, these regulations include lock-up periods wherein these individuals are not allowed to sell or pledge their shares for a certain amount of time post-IPO. Pledging shares as collateral for loans can be viewed as a form of indirect selling and may therefore be prohibited during this period. This can be particularly relevant for someone like Trump, who has significant influence and visibility.

Potential Risks for Investors

Investors often scrutinize the post-IPO share pledging as it can have implications for the company's stock performance. If a major shareholder could pledge their shares, any potential liquidation of such collateral could potentially flood the market with shares and depress the stock price. For a figure like Trump, whose actions are closely watched, any share-related movement could result in heightened sensitivity among investors regarding DWAC's stock.

In addition, the Securities and Exchange Commission (SEC) may have specific concerns about the transparency of financial dealings involving high-profile individuals like the former president. Thus, regulatory bodies could impose stringent checks on share pledging to ensure compliance with insider trading laws and other financial regulations.

shares, pledging, IPO