(Bloomberg) – Trump Media & Technology Group Corp. plummeted in late trading after the U.S. Securities and Exchange Commission declared effective a regulatory filing that could dilute shareholders.
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The long-awaited approval allows investors in the company’s derivatives, known as warrants, to swap their holdings for shares in the company, which could dilute long-term investors. The social media company majority-owned by former President Donald Trump fell about 15% in late trading to around $26, adding to a 36% decline this month through Tuesday’s close.
“Now that our S-1 has been declared effective, we expect we are well-positioned to vigorously pursue TV streaming, other improvements to the platform and potential mergers and acquisitions,” said Trump Media Chief Executive Officer Devin Nunes. Nunes has written letters to Congress and other regulators in recent weeks to pursue claims of an illegal form of short selling.
The warrants could be exercised, boosting Trump Media’s balance sheet to $247 million, but also adding millions of shares to the stock of shares available for trading, according to a filing Tuesday. Historically, some of the investors who exercise the warrants will in turn sell the shares they generate, which in turn creates selling pressure.
The warrants fell 32% to $14 each in late trading after closing at the lowest level since early May. They are also called sweeteners. They are a common part of deals for special purpose acquisition companies and are intended to reward investors while diluting the value of common shareholders’ interests through the issuance of millions of additional shares.
The former president is Trump Media’s largest stakeholder, with nearly 115 million shares worth nearly $3 billion on paper. However, due to a lock-up provision, he and other insiders are not allowed to sell shares until September. That restriction could be pushed back if the company’s board waives or brings forward the expiration of the conditions.
Trump Media, which owns Truth Social, has been volatile since going public earlier this year, with its stock rising to $79.38 in the days after its debut before falling to $22.55 in the weeks since.
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