{ "docId": "019dd923-622c-750b-8b98-185c8a5e84a0", "docSlug": "dbd70945c810", "documentTitle": "Digital World Acquisition Corp (DWAC)", "authorId": "53_Kerrisdale_Capital", "authorName": "Kerrisdale Capital", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2022-04-01 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 10, "pageCount": 27, "prevPage": 9, "nextPage": 11, "slideType": "preempt_rebuttal", "function": "preempt_rebuttal", "density": "dense", "nDataPoints": 0, "notes": "The slide uses a narrative approach to link past regulatory actions against ARC Global to the current DWAC situation.", "elementsJson": [ "headline_text", "paragraph" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b98-185c8a5e84a0/10", "deckHref": "/decks/019dd923-622c-750b-8b98-185c8a5e84a0", "deckJsonHref": "/decks/019dd923-622c-750b-8b98-185c8a5e84a0.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b98-185c8a5e84a0#slide-10", "components": [ { "bbox": null, "kind": "callout", "text": "A stop order would effectively end any hopes of closing the deal.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-3f41-721f-9e56-b9e0532012b9", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.115, "w": 0.766, "x": 0.117, "y": 0.13 }, "kind": "paragraph", "text": "While the SEC does not have authority to directly block a merger, it regularly accomplishes the same outcome through a Stop Order proceeding. When a company makes numerous material misstatements and omissions on a registration statement (i.e., S-1 or S-4) relating to (1) the identities of officers, directors, promoters, et al., (2) related party transactions, and/or (3) the nature of their operations, a Stop Order can suspend the effectiveness of that registration statement, thereby blocking the sale or issuance of shares to the public.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "22162fe7-aa96-4d0c-a5a5-8822d724da4e", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.115, "w": 0.766, "x": 0.117, "y": 0.475 }, "kind": "paragraph", "text": "The cast of characters at ARC Global who had their shell companies terminated by the SEC in 2017 are the exact same ones who now have their fingerprints all over DWAC and its pending merger. Not only does the SEC have the capability to effectively kill the merger, but it also has reason to be particularly aggressive in its adjudication given the recidivist nature of the participants. An effective S-4, already made difficult given the shell company nature of TMTG, is further complicated by the SEC's ongoing investigation into DWAC's S-1, the circumstances leading up to the proposed merger, and misstatements that jeopardize DWAC's very corporate existence.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "3d599183-f406-46de-b2a6-b4e20918429d", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.115, "w": 0.766, "x": 0.117, "y": 0.36 }, "kind": "paragraph", "text": "An effective S-4 registration statement is a closing condition under the terms of the merger agreement and the PIPE financing. A stop order would effectively end any hopes of closing the deal. As a practical matter, however, we believe it just as likely DWAC never files an S-4 in the first place. As Charles Whitehead, professor of business law at Cornell Law School explains, \"You don't want a stop order because it's such a black mark. Normally, if there is an irreconcilable difference with the SEC, you withdraw your registration statement.\"", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "daede623-9e2c-4415-91fd-2bf29b503196", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.115, "w": 0.766, "x": 0.117, "y": 0.245 }, "kind": "paragraph", "text": "As we later detail, ARC Group, a Shanghai-based sponsor and adviser behind DWAC (and BCAC), has a history of creating and financing shell companies that run afoul of SEC rules. In the 2017 stop orders that killed three ARC Global companies, among a host of other misrepresentations and omissions regarding the identities and affiliations of the individuals involved, the agency specifically cited gross misstatements of the true nature and scope of the entities, which were actually just shell companies.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f20e26e5-e23d-44b7-b676-6132ac7aebfa", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "You don't want a stop order because it's such a black mark. Normally, if there is an irreconcilable difference with the SEC, you withdraw your registration statement. — Charles Whitehead, professor of business law at Cornell Law School", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd953-3f41-721f-9e56-bf24c367f2ea", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.025, "w": 0.42, "x": 0.117, "y": 0.095 }, "kind": "title", "text": "The SEC Can Effectively Kill the Deal", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "31643168-bc9a-4e66-9601-23f2d43c9184", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [], "loops": [ { "to": 14, "from": 10, "name": "Cost Of Inaction", "slug": "27-cost-of-inaction", "bestFor": "Urgent budget requests, compliance, risk mitigation", "matchId": "02f5beba-4521-488d-9114-ee3415f3b08d", "evidence": "The discussion of the SEC's authority and motive to block the merger", "position": 0, "objective": "What are the consequences of not blocking the merger?", "structure": "The Status Quo -> The Hidden Costs Accumulating -> The Future State of Inaction -> The Tipping Point", "confidence": 0.6, "description": "Quantify what happens if the audience does nothing" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }