Feb 10 (Reuters) – A China-based financier, once reprimanded by U.S. regulators and banned from taking his company public, played a bigger role than publicly known in the front company that agreed to merge with the new social media company of former President Donald Trump. , learned Reuters.

Little has been revealed about the involvement of the financier, Abraham Cinta, and the Shanghai-based investment bank he heads, ARC Group Ltd, in the shell company’s regulatory filings. ARC is listed as a “financial advisor” to Digital World Acquisition Corp, the special purpose acquisition company (SPAC) that signed a deal in October to merge with Trump’s new media platform. No details are provided in the documents other than that the CRA could help PSPC with contacts in government and business, as well as access to a “quality deal pipeline”.

Now, new information — text messages, a financial document outlining the shell company’s proposed terms, an agreement between ARC and one of the creators of Digital World, and interviews with five sources familiar with the situation — show that Cinta and ARC did not content themselves with advising Digital Monde. They also offered money to start Digital World and recruited an executive to help get the company off the ground.

ARC offered to provide at least $2 million to three businessmen to form Digital World, the SPAC which later merged with Trump Media and Technology Group, and Cinta had a say in how the team of the direction of the SPAC would be remunerated, according to the financial document. and text messages between Cinta and others involved.

A person familiar with the matter said ARC eventually invested in the SPAC which became Digital World. Reuters could not confirm whether the investment was $2 million, as ARC originally reported. Early investors in the management entity, or sponsor, of Digital World invested a total of $11.8 million, according to the disclosures.

The Washington Post and Bloomberg News previously reported that ARC had a stake in sponsor Digital World. The fact that the CRA offered money to launch the SPAC is reported here for the first time.

Cinta and spokespersons for ARC and Digital World did not respond to requests for comment.

Reuters could not establish whether Trump had a role in the creation or formation of Digital World or what Trump knew of Digital World’s backers when his company signed the deal with SPAC. Spokespersons for Trump Media & Technology Group and a spokesperson for Trump did not respond to requests for comment.

ARC’s deep role in the deal is atypical for a financial adviser, which is the term used to describe ARC in Digital World’s regulatory filings. An advisor typically advises a SPAC on how to make a deal, but typically does not provide capital to the SPAC or become involved in determining its senior ranks. There are, however, no U.S. rules against such arrangements and no requirement to disclose them, according to two capital markets lawyers and two finance professors interviewed by Reuters.

Details about ARC’s role have shed new light on the financial firm behind the former president’s lucrative Digital World deal. ARC has carved out a specialty in funneling foreign money to the Wall Street boom in SPACs. SPACs are publicly traded shell companies that raise funds to acquire and take a private company public, allowing targets to circumvent the tighter regulatory controls of an initial public offering. The gold rush was fueled by many mom-and-pop investors placing risky bets that often turned sour.

The activities of Digital World are subject to regulatory scrutiny. The U.S. Securities and Exchange Commission and Financial Industry Regulatory Authority asked Digital World about the circumstances surrounding the deal, according to a regulatory filing. The SEC is reviewing Digital World’s policies and procedures relating to trading, as well as “the identity of certain investors” in the SPAC and the provenance of the money. FINRA has requested details of “surrounding events,” including a review of the exchanges that preceded the announcement of SPAC’s merger with Trump’s company, Digital World has revealed.

The SEC and FINRA took no action, and the agencies declined to comment on their requests.

Many questions remain unanswered about the deal, including where most of the $11.8 million in funds used to set up Digital World came from. That stake would now be worth $705 million, according to Reuters calculations based on regulatory filings.

The $2 million the ARC offered to pay was to come from a Singapore-based fund that Cinta’s company managed, according to the financial document with proposed terms seen by Reuters.

Besides the money ARC would invest with its Singaporean fund, two Israeli investors, blockchain entrepreneurs Stas Oskin and Sebastian Stupurac, would invest an additional $350,000, according to the document, whose digital signature lists Cinta as its creator.

Stupurac confirmed his stake in a text message to Reuters and said he remembered a different investment figure. He declined to disclose what his investment was and said “all information should be public at some point.” He added that he had agreed to “sponsor the idea” because he believed in the management team of SPAC, but had not been involved in its development and did not follow the follow-up . He declined to provide further details.

Oskin did not respond to requests for comment.

As part of the deal, the CRA would have veto power over any deal the blank check company makes, the document says. Reuters could not establish the identity of investors in the ARC Singapore fund who offered to invest in Digital World, or whether ARC was granted veto power.

Securities regulations do not require Digital World to disclose the investors behind its sponsor. Digital World lists the sponsor in regulatory filings as a Delaware-listed company called ARC Global Investments II. The documents do not specify whether this entity is affiliated with the China-based ARC. Newspapers cite Digital World chief executive Patrick Orlando as a “directing member” of ARC Global Investments II.

Orlando did not respond to requests for comment.

Digital World’s merger with Trump Media has so far been extremely lucrative for shareholders. Trump has yet to launch his social media product, and industry analysts have questioned whether it can support established platforms such as Facebook.

Investors nonetheless took shares in Digital World, making it the best-performing SPAC of all time. Trump’s company, worth $875 million when the deal was signed in October, is now valued at $10.6 billion.

Other US SPACs ARC has worked on have underperforming peers. The average share price of 18 ARC-affiliated SPACs, excluding Digital World, is $9.45, below their initial public offering price of $10 and the average of the $9.88 SPAC industry.

“THE CONVENTION HAS CHANGED”

Cinta’s early forays into public markets have struggled. A former Mexican Social Affairs Ministry official, Cinta and several ARC colleagues were reprimanded by the SEC in 2017 for misrepresenting companies they attempted to publicize and making false claims about their affiliation with them. In a rare move, the SEC blocked them from taking these companies public at the time.

Cinta and the SEC did not respond to requests for comment for a Reuters report on the matter last October.

Financiers quickly repositioned themselves as investment bankers in China and turned to SPACs as a new way to take companies public, a review of their dealings shows.

In creating SPACs to be listed in the United States, ARC often seeks American executives to become managers and raises funds from investors in China and other foreign countries to provide the initial capital needed to launch them, according to the regulatory documents and five people familiar with the matter.

In a 2020 marketing presentation that has since been removed from its website, ARC said it “was able to create a Wuhan-based SPAC sponsored by a family office, structured by ARC in Singapore, to enable our client to take advantage of the flexibility and advantages of the American financial markets.

SPAC, Yunhong International, headed by Orlando and financially backed by Chinese businessman Yubao Li, was liquidated last year, citing its “inability to complete a first business”, according to regulatory documents.

Li did not respond to requests for comment.

ARC became involved with Digital World when a Singapore-based ARC executive introduced Cinta to Daniel Santos, a blockchain consultant and entrepreneur in the city-state in 2020, a source familiar with the matter said.

Santos signed an agreement with ARC in September 2020 to connect ARC with executives who can form SPACs, according to a copy of the agreement seen by Reuters. In a hypothetical example of a $50 million SPAC, Santos would receive up to $97,500 in fees plus 20% of the SPAC shares that ARC would receive, the agreement says.

Santos was discussing the launch of a SPAC with two US video game industry executives, Lee Jacobson and Brian Fargo, according to the document, text messages and people familiar with the matter. Jacobson and Fargo sought capital — $556,090, according to a regulatory filing — to launch SPAC.

It was ultimately decided that Jacobson, the head of a San Diego-based game company called Robot Cache, would be CEO of Digital World, while Santos and Fargo would serve as directors on the board, according to the document and a regulatory filing. . In return, the three executives would get thousands of shares in SPAC, the text messages and the financial document show.

Jacobson and Fargo did not respond to requests for comment.

In July 2021, Cinta told Santos that Santos would no longer be part of Digital World. “The deal has changed… new owner, new board and management, but I’ll make sure we get some shares for you,” Cinta told Santos in one of the messages seen by Reuters.

Jacobson informed Santos that Jacobson’s role had changed from CEO of Digital World to director of the board. Orlando, a Miami businessman with whom ARC had worked on another SPAC, succeeded Jacobson as CEO of Digital World.

“Somebody else is running it now. We’ll see how it all goes because I’m still on the board,” Jacobson said in one of the text messages. Santos never received any shares or compensation from Digital World for building up SPAC, one of the sources said.

Orlando did not respond to requests for comment. Reuters could not find out what led to the changes in the management team and what role ARC played in them.

Additional reporting by Krystal Hu in New York, Chris Prentice in Washington DC and Anirban Sen in Bangalore; Editing by Greg Roumeliotis and Edward Tobin

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