One of the most powerful people on the planet has been blocked from selling one of his most prized assets.
Until now.
The restraints preventing former President Donald Trump from selling shares in his social media company are set to expire as soon as Thursday afternoon.
This will free Trump – and other insiders at Trump Media & Technology Group – to sell shares in the controversial company that owns Truth Social if they wish.
It’s a major moment for Trump Media, whose share price has fallen dramatically since going public in March.
The former president is the face of the company and its dominant shareholder. The risk that Trump and other insiders could rush for the exits has been hanging over the stock for weeks.
However, Trump has declared that he isn’t going anywhere, telling reporters last week: “No, I’m not selling. No, I love it.” Those comments sent Trump Media’s share price skyrocketing, for a few hours at least.
It’s a big decision for Trump, who has seen the value of his stake plunge to $1.8 billion. As recently as four months ago, it was worth $6.2 billion.
“He’s smarter than that,” said Michael Stegemoller, a finance professor at Baylor University. “Obviously he wouldn’t want to dump all of his shares onto the market. It would be a massive supply of shares. It would not go well for the share price – or him.”
‘Utterly tied up in one person’
Trump Media is inextricably linked to the former president.
Not only does Trump own a controlling stake in the company, but his initials are the stock ticker symbol (DJT) and he is the most popular user on the main product.
“This is a company whose value is so utterly tied up in one person. It’s pretty strange. Not even with Apple and Steve Jobs did we see something like this,” said Stegemoller.
That’s why it’s so crucial that Trump has signaled he isn’t selling.
“People think that I’m leaving. That’s why they’re down, ‘cause it’s different if I leave. But I’m not leaving,” Trump told reporters last week.
Disclosure required
If Trump changes his mind and decides to sell even some shares, he will be required to disclose that transaction publicly within two business days.
The Securities and Exchange Commission requires shareholders owning more than 10% of a company’s shares to file a Form 4 detailing stock sales.
Lock-up restrictions like the ones facing Trump are typical in deals like the one that brought Trump Media public last spring.
The idea is that it’s not a good look for early insiders to immediately rush for the exits, so they promise not to sell or even borrow against their shares for around six months.
If Trump Media remains above $12 on a closing basis, the lock-up restrictions lift as early as the close of trading on Thursday.
However, there is some ambiguity in the documents about precisely when the lock-up period ends, with some suggesting it could be a few days later.
Shares of Trump Media closed at a record low on Wednesday.
Regardless of what the share price does, the lock-up restrictions are set to expire by September 25 at the latest.
Trump selling is not the only risk.
Once the lock-up restrictions lift, other insiders will also be able dump their shares.
For instance, two of Trump Media’s co-founders – Andy Litinsky and Wes Moss – could decide to exit their positions. Both Litinsky and Moss, former contestants on Trump’s NBC show “The Apprentice,” have battled the company in court over their shares.
Using stock to borrow money
Another question is whether Trump will decide to raise cash by pledging his shares in Trump Media as collateral in a loan.
Such a move would allow him to avoid the optics of outright selling his shares. But it would also require Trump to find a bank, financial institution or other individual willing to lend to him – and that may be no small task.
Trump would likely need to disclose that he put his shares up as collateral in a loan, several legal experts told CNN. Failure to do so could cause trouble with regulators.
Last month, the SEC fined legendary investor Carl Icahn for failing to disclose information linked to his alleged decision to pledge vast amounts of shares in his holding company to secure personal loans worth billions of dollars. Icahn settled the charges without admitting or denying the findings.
“Compliance with that requirement has often been a bit spotty, but the SEC just extracted a big fine from Carl Icahn a few weeks ago for failing to make a very similar filing,” 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 a harder line against anyone else doing the same thing.”