Elizabeth Warren is asking the SEC to investigate the Trump SPAC deal over potential securities violations

• Senator Elizabeth Warren has asked the SEC to investigate Donald Trump's Digital World SPAC.
• Warren said in a letter to the SEC that the SPAC may have committed securities violations.
• Digital World Acquisition soared as much as 1,650% last month on plans to merge with Trump's media company.

Senator Elizabeth Warren is asking the Securities and Exchange Commission to investigate whether Digital World Acquisition committed securities violations when the SPAC announced plans to merge with Donald Trump's media company.

Digital World is a SPAC that soared as much as 1,650% in just two days after it announced plans to merge with Trump Media and Technology Group last month. The former president's media company is focused on developing a social media platform that could one day compete with mega-tech giants like Facebook and Alphabet, according to its investor presentation.

But soon after news of a potential merger, reports surfaced that Digital World held private and undisclosed discussions about merging with Trump Media as early as May 2021. The SPAC didn't start trading until September, and it gave no indication in its SEC filings that it planned to merge with the Trump company, misleading regulators and the public, Warren argued.

"Reports that Digital World Acquisition may have violated securities laws and harmed investors during its acquisition of Trump Media and Technology Group are deeply troubling and provide an opportunity for the SEC to follow through on its commitment to investigate wrongdoing and fraud in the SPAC space," Warren wrote in a letter to SEC chairman Gary Gensler on Wednesday.

Warren also reiterated her concerns to Gensler that SPACs in general need more scrutiny from the regulatory agency, as they "are often structured to exploit retail investors to the benefit of large institutional investors such as hedge funds, venture capital insiders, and investment banks."

According to Warren, Digital World's failure to disclose alleged early talks with Trump and his company "had the result of enriching big investors while trapping retail investors in a stock bubble."

Since the SPAC hit a high of $175 on October 22, it has fallen 68% to around $56 as of Thursday afternoon. One investor that bought shares of Digital World on the same day it peaked is congresswoman Marjorie Taylor Greene, who bought between $15,001 and $50,000 of the stock, according to a financial disclosure form.

Meanwhile, early investors in the SPAC like Lighthouse Investment Partners and Saba Capital saw peak paper profits of more than $100 million shortly after the deal was announced.

Warren also pointed to reports that early iterations of Trump Media's social media platform are half-baked, and the company doesn't have a core business model as it says it will compete with the likes of trillion dollar companies.

"If these reports are true, the agency has a responsibility to act," Warren said.