Trump faces $2 billion decision over his social media empire

Washington
CNN
—

One of the most powerful people in the world has been banned from selling one of his most valuable assets.

Until now.

Restrictions preventing former President Donald Trump from selling shares in his social media company expire on Thursday afternoon.

This gives Trump – and other Trump Media & Technology Group insiders – the freedom to sell shares in the controversial company that owns Truth Social if they so choose.

This is an important moment for Trump Media, whose stock price has fallen dramatically since its IPO in March.

The former president is the face of the company and its largest shareholder. The risk that Trump and other insiders could leave the company has been hanging over the stock for weeks.

Trump, however, has stated he is not going anywhere, telling reporters last week, “No, I'm not selling. No, I love it.” Those comments sent Trump Media's stock price soaring, at least for a few hours.

It is a big decision for Trump because the value of his stake has fallen to $1.8 billion. Just four months ago it was worth $6.2 billion.

Even if Trump wanted to sell all or most of his shares, he would be limited by reality: Someone who owns 57 percent of the stock cannot simply call his broker and sell all – or even most – of the shares without the stock price plummeting.

“He's smarter,” says Michael Stegemoller, a finance professor at Baylor University. “Of course he wouldn't want to throw all his shares onto the market. It would be a huge stock offering. That wouldn't be good for the stock price or for him.”

Trump Media is inextricably linked to the former president.

Not only does Trump own a majority stake in the company, but his initials also form the stock symbol (DJT) and he is the most popular user of the main product.

“The value of this company depends so much on one person. That's strange. We've never even seen anything like that with Apple and Steve Jobs,” said Stegemöller.

That is why it is so crucial that Trump has signaled that he does not want to sell.

“People think I'm leaving. That's why they're so disappointed, because when I leave, it's different. But I'm not leaving,” Trump told reporters last week.

Should Trump change his mind and decide to sell at least some shares, he would be required to publicly announce the transaction within two business days.

The Securities and Exchange Commission requires shareholders who own more than 10% of a company's stock to file a Form 4 detailing stock sales.

Lock-up periods like those threatening Trump are typical of deals like the one that took Trump Media public last spring.

The idea behind this is that it doesn't look good if insiders immediately push for an exit. That's why they promise not to sell their shares or take out loans for about six months.

If Trump Media remains above $12 at the close of trading, the blocking restrictions will be lifted at the close of trading on Thursday.

However, there is some ambiguity in the documents about when exactly the embargo period will end; some suggest it could be a few days later.

Trump Media shares closed at a record low on Wednesday.

Regardless of the development of the share price, the lock-up periods will expire on September 25 at the latest.

Selling Trump is not the only risk.

Once the lock-up periods are lifted, other insiders will also be able to sell their shares.

For example, two co-founders of Trump Media – Andy Litinsky and Wes Moss – could decide to give up their positions. Both Litinsky and Moss, former contestants on Trump's NBC show “The Apprentice,” have fought in court over their shares.

Another question is whether Trump will decide to raise money by pledging his shares in Trump Media as collateral for a loan.

Such a move would allow him to avoid the appearance of an outright sale of his shares. However, it would also require Trump to find a bank, financial institution or other person willing to lend him money – and that would be no easy task.

Trump would likely have to disclose that he used his stocks as collateral for a loan, several legal experts told CNN, and if he doesn't, he could get in trouble with regulators.

Last month, the SEC fined legendary investor Carl Icahn for failing to disclose information about his alleged decision to pledge large amounts of his holding company's stock as collateral for billions of dollars in personal loans. Icahn settled the charges without admitting or denying the findings.

“Compliance with this requirement has often been a bit spotty, but the SEC fined Carl Icahn a few weeks ago for failing to file a very similar report,” said Xavier Kowalski, a former partner at Schulte Roth & Zabel who is now a lecturer in the finance department at the University of Florida. “I would expect the SEC to take tougher action against anyone who does the same thing.”