Donald Trump sues his firm, Truth Social's co-founders after losing $1bn - Hindustan Times
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Donald Trump sues his firm, Truth Social's co-founders after losing $1bn

Apr 03, 2024 12:09 PM IST

Former President Trump takes legal action against Truth Social co-founders, citing mismanagement and significant IPO delays.

Former US President Donald Trump has filed a lawsuit against Wes Moss and Andy Litinsky, the co-founders of the social media platform Truth Social.

Stock turmoil follows as Donald Trump sues Truth Social co-founders. Scott Olson/Getty Images/AFP(Getty Images via AFP)
Stock turmoil follows as Donald Trump sues Truth Social co-founders. Scott Olson/Getty Images/AFP(Getty Images via AFP)

The lawsuit alleges mismanagement by the executives, which Trump claims led to significant delays in the company’s Initial Public Offering (IPO). Filed in a Florida state court, the suit by Trump Media & Technology Group Corp. seeks to have the co-founders’ shares in the company rescinded.

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Moss and Litinsky, who previously appeared as contestants on Trump’s television show ‘The Apprentice,’ proposed the idea of Truth Social to Trump after his ban from Twitter in the wake of the January 6, 2021, Capitol riot.

ALSO READ| Donald Trump's net worth plunges $1bn after Truth Social's $58mn loss and stock debacle

Mismanagement at Truth Social evident in SEC filings

The lawsuit states, “This was a phenomenal opportunity for Moss and Litinsky,” and asserting that “Without President Trump, Truth Social would have been impossible.”

The suit also claims that the co-founders should drop all their shares for mismanaging the company.

The Trump Media & Technology Group saw its value inflate on paper, but the reality proved less promising. A recent SEC filing disclosed that Truth Social generated only $4 million in revenue against losses of $58 million in 2023, casting doubt on the platform’s profitability and investment viability. You don't need to be a business prodigal to understand how big of a flop Truth Social is.

The legal complaint, first reported by Bloomberg, accuses Moss and Litinsky of failing to establish proper corporate governance and secure a special purpose acquisition company (SPAC) to facilitate the company’s public debut and provide necessary funding.

The suit was filed on March 24, subsequent to the approval by shareholders of Digital World Acquisition Corp. to merge with Trump Media & Technology Group, now renamed Trump Media, where Trump is the principal shareholder.

Trump probably diluted Truth Social's shares, co-founders sued the platform

The legal battle between the parties escalated when Moss and Litinsky filed a lawsuit against Trump’s company in Delaware Chancery Court in February. They allege that the former POTUS attempted to dilute their shares by proposing an increase in the total number of authorized shares from 120 million to 1 billion.

ALSO READ| Donald Trump's niece spells doom for Truth Social, ‘it's destined for failure’, experts agree

The public trading of Trump Media shares commenced on March 26, with the stock price initially soaring above $79. However, the value has since experienced a steep decline, closing at $51.60 on the following Tuesday. This downturn coincides with the company’s financial report, which disclosed a net loss of $58.2 million against a revenue of $4.1 million for the year 2023.

Why has Truth Social stock plummeted

The stock of Truth Socialhas plummeted due to many factors:

  • The social platform reported a significant loss of nearly $60 million last year, while generating only about $4 million in revenue.
  • This financial downturn has reduced the former president’s net worth by $1 billion.
  • Truth Social is experiencing a loss of users and an increase in cash burn, which has raised concerns about its sustainability.
  • The company’s shares had previously surged in a manner similar to “meme stocks,” which are known for rapid increases due to social media hype despite weak business fundamentals.
  • After the initial surge, experts had anticipated a market correction, warning that the stock was likely to fall.
  • Trump Media’s sole income comes from advertising on Truth Social, which has been affected by the platform’s declining user base.

These factors combined have led to a sharp decrease in the stock price, with shares dropping by $13.30 to $48.66 on Monday, although they remain up by nearly 200% for the year.

How much has Trump lost after Truth Social listing

Following the listing of Truth Social, Trump’s financial stake in the company suffered a significant loss. On the first day of trading, the stock’s surge increased the value of Trump’s shares to over $5.2 billion. Last week, the stake was valued at approximately $4.88 billion. After Monday’s market downturn, the value of his stake fell to about $3.83 billion.

This clearly says that Trump’s stake in the company has decreased by more than $1 billion since the listing of Truth Social.

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