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Friday, March 22, 2024

Trump Media merger faces legal challenges as deal nears crucial vote - The Washington Post

Trump Media, launched after an insurrection, faces rebellion of its own

"Four lawsuits involving the founding boosters of Truth Social threaten to erode former president Donald Trump’s grasp on a massive financial haul

Donald Trump, seen through a television camera in 2020. (Jabin Botsford/The Washington Post)

When former president Donald Trump’s Trump Media & Technology Group and its proposed merger partner, Digital World Acquisition, announced last month a shareholder vote on their long-delayed deal, it marked a final step for the owner of Truth Social to become a public company potentially worth billions of dollars — most of which is owned by Trump himself.

But in the lead-up to Friday’s vote, both companies have been rocked by legal warfare. Their leaders, past and present, have traded heated accusations of deception and impropriety across four lawsuits in three states. And the cases threaten to erode Trump’s grasp on a stake in the post-merger company potentially worth hundreds of millions of dollars — a possible financial lifeline, given that he owes more than $500 million in legal fines.

After Trump was booted from Twitter following the Jan. 6, 2021, insurrection, three men played pivotal roles in building and promoting Trump Media as an online challenger against the “cancel culture” of Big Tech: Andy Litinsky and Wes Moss, former “Apprentice” contestants who co-founded the company and launched Truth Social; and Patrick Orlando, who as chief executive of Digital World, a special purpose acquisition company, or SPAC, offered Trump’s company a path to investor cash.

But all three are now leading a rebellion of their own, confronting and potentially imperiling a trophy of Trump’s post-presidential ambitions. Their lawsuits call into question how Trump Media’s shares will be distributed, and a legal victory could chip away at Trump’s equity during a time when he is facing a cash crunch.

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The litigation won’t stop Friday’s shareholder meeting, during which Digital World has said it will announce whether a majority of investors voted to approve the merger. But the hundreds of pages of legal filings in the four cases offer clues to answers for some long-running questions about the companies’ inner workings and expose details of the turmoil that has characterized efforts to create a pro-Trump internet empire.

In the most recent lawsuit, filed Tuesday in a New York state court, Digital World asked a judge to force Orlando to vote in support of the merger, saying he could tank the deal by not voting shares owned by a company he controls — Digital World’s biggest founding investor, Arc Global Investments II.

“The merger vote is now less than one week away … and yet, Arc refuses to lodge its vote,” Digital World attorneys said in the complaint. If Digital World “fails to effectuate a merger, it will be forced to dissolve. Urgent relief is required by March 22 to avert such harm.”

Usha Rodrigues, a University of Georgia law professor who studies SPACs, said the level of turmoil was unusual for a deal like this. A merger vote, she said, is “typically a nonevent” because investors just want it to get done.

“SPAC mergers typically do not go like this,” she said. But “this whole process has been idiosyncratic, as everything has been with this SPAC.”

Trump Media attorney Jesse Binnall said in a statement Thursday, “These allegations simply add to the heap of false claims, defamation, and fake news about Truth Social for which the Washington Post is already being sued.”

Representatives for Trump’s presidential campaign, Digital World, Arc, Orlando, Litinsky and Moss did not respond to requests for comment.

The merger vote will be widely watched by observers of Trump’s finances. If the deal is approved, Trump would own about 60 percent of the post-merger company, a stake that at Digital World’s current price would be worth more than $3 billion.

That money could eventually go toward Trump’s high-profile legal penalties. He failed to finance an appeal bond for more than $450 million to cover a judgment in the New York attorney general’s business fraud case against him, his attorneys said Monday, citing “insurmountable difficulties.”

A lockup provision in the Trump Media merger agreement, however, would block Trump and other major investors from selling their shares for six months after the merger’s closing date, which could be as soon as Friday — unless Trump gets a waiver from Digital World or the post-merger Trump Media’s leaders allowing him to sell sooner. Such lockup periods are standard provisions in corporate deals, designed to instill confidence in investors that the leaders won’t sell before enough time has passed to see how the company performs.

Digital World’s stock price dropped this week to a two-month low before rebounding to about $43 — about 15 percent below its peak last month, when the Securities and Exchange Commission allowed the merger deal to proceed.

After a merger vote, the combined companies would go by Trump Media and trade under a new stock ticker symbol, DJT — Trump’s initials. That symbol was also used for Trump’s only other public company, Trump Hotels and Casino Resorts, whose stock plunged from nearly $35 to about 17 cents in less than a decade before the company filed for bankruptcy in 2004.

Two of the lawsuits, filed last month in Delaware, center on Trump Media’s stock. In one case, Arc sued Digital World, its new chief executive, Eric Swider, and three members of its board, saying they intended to improperly deprive Orlando of millions of previously guaranteed shares.

In a separate case, Litinsky and Moss sued Trump Media, claiming in a recently unsealed complaint that the company had authorized the issuing of 1 billion new shares of company stock — a move they say would dramatically dilute their stake, from 8.6 percent down to less than 1 percent.

Attorneys for Litinsky and Moss’s partnership, United Atlantic Ventures, said Trump intended to “use his domination and control” of the company’s board to place some or all of the new shares “in his own hands and those of [people] beholden to him.”

UAV’s attorneys argued in a motion that the alleged attempt, which Trump Media has disputed, was driven by Trump’s need for cash. The merger “represents a potential (and perhaps existential) liquidity event for Trump, which may explain his last-minute stock grab,” the motion said.

In their lawsuit, the men reiterated a claim, first reported by The Washington Post in 2022, that Trump had pressured Litinsky to hand over some of his shares to Trump’s wife, Melania. After Litinsky resisted, the lawsuit says, Trump pushed both men out. Trump Media said in 2022 that The Post’s report was based on “concocted psychodramas.”

In both cases, the judges rejected the plaintiffs’ requests to postpone the merger vote until their cases were resolved. Vice Chancellor Sam Glasscock III, in the UAV case, and Vice Chancellor Lori W. Will, in the Arc case, said putting the disputed shares into an escrow account, so that the lawsuits’ victors could take them over once the cases are finished, should suffice.

But both judges have also indicated they would prefer to resolve the disputes within a few months, meaning that the cases could shift the ownership for hundreds of millions of dollars’ worth of stock before the lockup period ends.

Digital World has warned investors that Arc could play a show-stopping role in the merger deal. As Digital World’s sponsor, Arc owns about 15 percent of its outstanding stock, including a majority of a stock class known as “founder shares,” according to an SEC filinglast month.

In the filing, Digital World said its relationship with Orlando had seen a “continued deterioration” and that, if Arc were to withhold votes supporting the merger, it could “lead to our liquidation.”

In a third lawsuit, filed in New York, Digital World sued to force Arc to vote in favor of the deal, saying Orlando could not hold the vote “hostage for his personal gain.” In a Monday email submitted as an exhibit in the case, Orlando wrote that Arc had been “repeatedly pressed” to vote before the meeting but that “Arc is not going to do that.”

In a fourth lawsuit, filed in Florida, Trump Media and Digital World returned fire at Arc and Orlando, saying the Miami financier had attempted a “blatant shakedown extortion effort” against the companies to maximize his personal stake.

An amended complaint Sunday, featuring the names of nine attorneys representing Trump Media and Digital World, alleged that Orlando and Arc’s “self-dealing, irrational and disturbing behavior” had “imposed massive costs” and caused “extensive reputational harm.”

They want to “extort more compensation in the merger by threatening to destroy it entirely — an existential threat to [Digital World] itself,” the complaint said.

The complaint blamed Orlando for the SEC investigation that Digital World agreed last year to pay $18 million to settle once the merger deal finalizes. It also alleged that the SEC sent Orlando a letter, known as a Wells notice, indicating that he could face charges for violating securities laws. (The SEC declined to comment.)

Orlando’s “reckless and irrational behavior,” the complaint said, had included withdrawing $15,000 in cash for unexplained expenses and leaking merger details to the press — an act that was exposed when Orlando “excused himself to take another phone call but forgot to mute the first call.”

In a video Will Wilkerson sent to the SEC, Digital World and Trump Media executives toast an investment deal on Oct. 26, 2021. (Video: Will Wilkerson)

The complaint also alleged that Orlando kept invoices and contracts in his personal email account, leading the company to omit multiple vendors from its financial reports. His mismanagement, it said, helped drive the company’s auditor to resign. (Trump Media sued The Post for $3.8 billion last year, saying the news organization had reported incorrectly on allegations concerning its financing. A federal judge in Florida dismissed the case this month but allowed Trump Media to amend its complaint if it believes it can state a viable claim.)

After Digital World’s board fired Orlando last March as its chief executive, Orlando discouraged people from investing in the company “based on his own personal grievances,” saying it was “his turn to make the life of the new CEO miserable,” the complaint said.

In recent months, Orlando has refused to resign from the Digital World board — a necessary step to allow for a new post-merger board — unless the company provides him shares and stock options, known as warrants, worth more than $222 million at the time of the lawsuit’s filing, according to the complaint.

Though Orlando was once a prominent Trump ally, even writing him a birthday letter in 2021 telling Trump he was “unaware of the extent of your brilliance,” the legal claims suggest the dispute has become deeply bitter and personal.

In the Florida case, a process server handed Orlando the summons papers one afternoon outside a private elementary school in the Miami neighborhood of Coconut Grove, a court filing shows. In a Delaware court hearing earlier this month, one of his attorneys said Orlando had been served when he was “getting off the bus from a field trip with his daughter, in front of her fifth grade class and their parents,” leaving the attorney “so taken aback," according to a hearing transcript.

Even more facts could come out in the weeks ahead. Orlando posted a photo last month to Truth Social showing him wearing a Truth Social hat with the caption “TRUTH! John 8:32” — a Bible verse that reads, “Then you will know the truth, and the truth will set you free.”

Trump Media merger faces legal challenges as deal nears crucial vote - The Washington Post

How the Fight Against Apple Could Redefine Antitrust Law

How the Fight Against Apple Could Redefine Antitrust Law

“The Justice Department’s lawsuit against the iPhone maker pushes the boundaries of competition rules. Some experts say that may make winning more difficult.

A man wearing glasses and a dark, checkered suit stands at a lectern in front of another man, Attorney General Merrick Garland, and a woman.
Justice Department officials, including the antitrust chief Jonathan Kanter, foreground, are trying to push the boundaries of regulations with the new lawsuit against Apple.Jose Luis Magana/Associated Press

A shot at Apple’s moneymaker 

With its antitrust lawsuit against Apple, the Biden administration has joined a growing list of regulators taking on the iPhone giant. But the Justice Department is taking a more ambitious approach than the others by aiming at the company’s tight control of the iPhone ecosystem, which officials say hurts consumers and developers while producing giant profits.

If successful, the case could upend a business model that has made Apple one of the most profitable companies in history — but victory would require courts to accept a redefinition of decades-old antitrust law.

Prosecutors zeroed in on Apple’s efforts to lock-in consumers. The Justice Department argues that the company unlawfully restricted competition by blocking key iPhone features to prevent consumers from switching devices.

Apple is profiting “not by making its own products better, but by making other products worse,” Attorney General Merrick Garland said on Thursday.

The lawsuit identified five areas: smart watches, digital wallets, cloud-based gaming, messaging apps — yes, the green-bubble debate is key here — and so-called “super apps” that bundle different programs. (It also suggests that Apple’s behavior affects an even wider array of products, including cars.)

Apple said the approach amounted to excessive interference in business.“If successful, it would hinder our ability to create the kind of technology people expect from Apple — where hardware, software, and services intersect,” a spokeswoman said, adding that it would let the government have a heavy hand in designing people’s technology.

Regulators globally are already changing how Apple operates. The European Union’s sweeping Digital Markets Act aims to open up iOS and the App Store, and the bloc has also fined the company $2 billion for hampering music-streaming competitors.

South Korea and the Netherlands have adopted legislation to require app store owners to allow alternative payment systems. (Skeptics say Apple is seeking to undermine those efforts.)

The new case pushes the boundaries of traditional antitrust policy. That’s in keeping with the stated aim of regulators like Jonathan Kanter, the Justice Department’s antitrust chief, and Lina Khan, the head of the F.T.C.

“We want to help real people by making sure that our antitrust laws work for workers, work for consumers, work for entrepreneurs and work to protect our democratic values,” Kanter told The Times in January, declining to comment on specific cases.

But some experts think this lawsuit is a stretch. Gus Hurwitz, a senior fellow at the University of Pennsylvania Carey Law School, told DealBook that antitrust policy traditionally hasn’t focused on issues like porting consumer data to different platforms.

He added that while prosecutors were seeking to help some consumers — those who favor switching devices — the lawsuit could end up hurting others. Users of iOS “derive a lot of value from their closed ecosystem,” he said. “Apple users like the closed ecosystem and the benefits that confers on them.”

Thursday, March 21, 2024

The US Sues Apple Over iPhone Competition: What to Know - CNET

The US Sues Apple Over iPhone Competition: What to Know

"The Department of Justice says Apple has stifled competition and violated antitrust laws in the name of security.

The iPhone 15 family lineup

The US Department of Justice and 16 state attorneys general say Apple has used its industry-defining iPhone to enrich itself while stifling competition.

James Martin/CNET

The US Department of Justice and 16 state attorneys general filed an antitrust lawsuit against Apple on Thursday, saying the company has used its industry-defining iPhone as a tool to enrich itself while stifling competition.

In an 88-page suit filed in the US District Court for the District of New Jersey, the government argued that Apple violated antitrust laws through its tight control over the iPhone, preventing other companies from creating key applications and services that would compete with its own. The result, the government said, is that Apple has kneecapped competition from apps that would offer functionality consumers would benefit from, such as support for a competitor's smartwatch, digital wallet or cross-platform messaging service.

"We allege that Apple has consolidated its monopoly power, not by making its own products better, but by making other products worse," US Attorney General Merrick Garland said in a news conference Thursday. He added that Apple's share of the US smartphone market exceeds 65% and that the company maintains its power by creating barriers that "make it extremely difficult and expensive for both users and developers to venture outside the Apple ecosystem."

Apple denied the government's accusations, saying in a statement that the lawsuit "threatens who we are and the principles that set Apple products apart in fiercely competitive markets." The company added that if the suit were to succeed, it would "set a dangerous precedent, empowering government to take a heavy hand in designing people's technology." 

"We believe this lawsuit is wrong on the facts and the law, and we will vigorously defend against it," the company added.

The US government's lawsuit strikes at the heart of Apple's nearly $3 trillion empire, built off the wild success of its iPhone. Since its introduction 17 years ago, Apple's been able to leverage the iPhone into a powerhouse of industry, powering services like its App Store, which itself has become the lifeblood of multibillion-dollar companies including Uber, Airbnb and Spotify.

Critics say Apple's success has come at a cost, choking out competitors whose products are unable to compete against Apple's own products and services built around the iPhone's core functionality.

The lawsuit has the potential to reshape the decisions tech companies can make when creating secondary experiences for the devices they build. The Justice Department cited many examples where it believes this is happening, including video game streaming, cross-platform messaging, smartwatches, web browsers and advertising.

Here's everything you need to know about the lawsuit so far.

Not just the US

The DOJ's lawsuit against Apple is a historic one that will likely have impact far beyond Apple's business practices for many years to come. But it's also the latest in a series of regulatory and legal challenges Apple's faced from governments around the world.

Most notably, the European Union hit Apple with a landmark $2 billion fine earlier this month, for preventing rival streaming services from telling users about cheaper ways to subscribe outside Apple's App Store.

More regulation

There's been a steady drumbeat of increasing regulation aimed at the tech industry over the past few years. 

The first major one was the EU's General Data Protection Regulation, or GDPR, which was ratified in 2016. That sweeping law gave EU residents more control over their data, while requiring companies to disclose how it's tracked, gathered and used. Among other things, it forced websites to ask for permission every time they want to use cookies that gather information on you.

Another set of EU laws, known as the Digital Markets Act, attempts to curb the tech industry's power by identifying "gatekeeper" companies, whose power is so vast that they must follow rules that ensure fair competition. 

For Apple, that's forced a radical change to the App Store. Earlier this month, the company released a version of its iPhone software made to allow European customers to download apps from outside the App Store, the first time the company has sanctioned such moves. Apple has said that while it intends to comply with the EU's laws, allowing people to download apps from anywhere around the web creates potential security threats that potentially expose user's private information.

Marketing vs. reality

The Justice Department's case against Apple questions the company's marketing that its strict controls over the App Store are in the best interests of consumers, and the wider industry. 

Apple has argued for years that it needs to treat the security of its iPhones and iPads differently from any other device before, because these handheld internet-connected supercomputers can collect so much information about who we are, where we go and what we do. The DOJ is arguing that even if that's true, Apple has used security as an excuse to push out competitors who could have offered apps, devices or services people benefit from. 

The DOJ's specific examples

The US agency's sweeping lawsuit focuses on some specific areas of Apple's business it believes are anticompetitive.

Cross-platform messaging

This is likely to be the issue most of us relate to, as we're all well steeped in the debate over green bubbles versus blue bubbles. The Justice Department went a step further and noted that green bubble messages are lower quality and don't have modern features like typing alerts that have become commonplace across the industry.

Video game streaming

Apple has famously fought Microsoft, Epic and other companies over game streaming, creating a rift among tech giants who say they're trying to provide more video game playing options on the iPhone. Apple eventually relented, as it was preparing to comply with the EU's DMA rules, among others.

Web browsers

Apple keeps particularly tight control over the web browsing experience on the iPhone, arguing it can be an attack vector for cybercriminals otherwise. Outside the EU, other web browsers are allowed to be offered on the iPhone, but they must use Apple's built-in "engine" to translate web data into the text and images you see on the screen. It may seem nerdy, but it's at the heart of how the internet runs. In the EU, because of the DMA, iPhone and iPad users can choose to use other web browsers and their separate engines, such as Mozilla's Firefox


The Apple Watch is an industry behemoth, selling more units than all Swiss watch makers combined. Few other companies have been able to compete in the smartwatch category, which the Justice Department says is because Apple's tight control over software effectively slows competition.


This is a big one. Apple has come out swinging against companies like Alphabet's Google and Meta's Facebook, attempting to curtail the way they track user behavior across the iPhone and open web. Facebook has said some of Apple's moves, such forcing apps to ask users for approval of tracking technology, have cost it tens of billions of dollars." 

The US Sues Apple Over iPhone Competition: What to Know - CNET