Trump Media’s strategy to attack short sellers and prop up its swooning stock price may be futile, experts warn. Forbes money in politics reporter Kyle Mullins joins Brittany Lewis to discuss.
Read the full story on Forbes: https://www.forbes.com/sites/kylemullins/2024/04/26/truth-social-wants-wall-street-to-stop-shorting-its-stock-good-luck/
0:00 Introduction
1:16 Truth Social The Past Two Months
4:11 Why Is Trump In Trouble Legally?
7:58 The SEC Investigation
10:36 How Is Truth Social Stock Rising?
12:42 Who Are Truth Social's Stockholders?
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Read the full story on Forbes: https://www.forbes.com/sites/kylemullins/2024/04/26/truth-social-wants-wall-street-to-stop-shorting-its-stock-good-luck/
0:00 Introduction
1:16 Truth Social The Past Two Months
4:11 Why Is Trump In Trouble Legally?
7:58 The SEC Investigation
10:36 How Is Truth Social Stock Rising?
12:42 Who Are Truth Social's Stockholders?
Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1
Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:
https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript
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More From Forbes: http://forbes.com
Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.
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LifestyleTranscript
00:00 Hi, everybody. I'm Brittany Lewis, a reporter here at Forbes. Joining me now is my Forbes colleague, Money in Politics reporter Kyle Mullins.
00:10 Kyle, thanks so much for joining me. Always great to be here, Brittany. Your recent reporting for Forbes is this, quote, Truth Social wants Wall Street to stop shorting its stock.
00:21 Good luck. First, why would Truth Social think Wall Street is shorting its stock in the first place?
00:30 The short answer is because Wall Street is definitely shorting its stock. Investors since Truth Social went public in late March have thought that this stock was a little bit overvalued.
00:44 By a little bit, I mean a lot overvalued. I've done some reporting on this, and I think we're going to talk about this a little more.
00:51 The stock price and the market cap Truth Social has right now just doesn't really reflect its fundamentals.
00:58 It's been compared to a meme stock like GameStop or AMC. People remember those from a couple of years back.
01:05 There's a lot of investors on Wall Street who think that Truth Social might be overvalued, and as such, they are betting against it on the markets, and they have every legal right to do so.
01:16 Trump Media and Technology Group, which is Truth Social's parent company, went public back in March.
01:22 Can you talk to us about how Truth Social's share prices have been doing since it went public about two months ago?
01:30 It's been a roller coaster. Truth Social's stock price – excuse me, Trump Media and Technology Group's stock price, and I should note it trades under the ticker DJT, which are the former president's initials.
01:40 It's been a roller coaster. It took a dive for a couple of weeks. It's actually had a bit of a recovery lately, and then it's down today, I think.
01:49 It's been up and down and up and down. It's been a pretty wild ride. We're talking billions of dollars in market capitalization swinging back and forth.
01:58 For a company that is only worth in the single-digit billions of market capitalization, those are some pretty big swings.
02:05 Why is it swinging so wildly? Is it because it is a meme stock?
02:12 I'm not an investor. I don't study the stock myself. But what I would say is that it's an unpredictable stock.
02:21 SPACs, or stocks that go public via a SPAC, tend to be a little bit more volatile in the weeks and months following their being traded for the first time on the public market.
02:31 That's definitely an element of it. It is a bit of a meme stock, at least based on the investors and experts who I talk to.
02:40 A lot of the folks who I talk to say that the people who are investing in this stock are doing so not because they think that the company is doing amazing.
02:48 It's not. It had less revenues last year than the average cheesecake factory restaurant.
02:52 But they're investing in it because of what it represents. It represents investing in Donald J. Trump and the presidential candidate that they feel so strongly about.
03:02 For retail investors, they might be chasing investing in a person, not necessarily a company.
03:09 Trump Media and Technology Group CEO Devin Nunes clearly is not happy with these prices plunging, and he blamed Wall Street for participating in "potential market manipulation."
03:22 How did that go?
03:24 Wall Street didn't take that well. There was at least one company CEO who, or excuse me, one company that issued a response that basically called Devin Nunes a loser,
03:33 said he would have been fired if he had been on The Apprentice, which is a little bit catty for Wall Street.
03:41 But I also think that just in general, we don't really know what the effect of this rhetoric is going to be.
03:47 I did mention that there's been a bit of a rebound in the stock price. I don't know whether we can attribute that to Devin Nunes' campaign against short sellers or not.
03:55 Short selling has actually increased if you look at interest in short selling over the past week or so. It's actually gone up.
04:04 So if the stock price is going up, but short selling is also going up, that suggests that these two things are not really linked super strongly together.
04:11 I am curious if you could explain the rules a bit here for us. Is short selling like this legal?
04:19 So short selling, which is basically betting against a stock, you're betting that instead of it going up, it's going to go down.
04:25 It is generally legal. The way it works is an investor will borrow a stock, usually from someone who owns that stock, and then sell it.
04:35 And then they're hoping that when they repurchase it later on down the line, the stock price has gone down.
04:41 So they made a little bit of a profit there and then they return it to the original owner.
04:45 And that's generally legal. It's a totally normal practice. It's been done on securities markets for a long time.
04:52 What Nunes talked about in some of his public communications is naked short selling,
04:57 which is the idea that you're selling the stock without first securing stock to sell, whether you're borrowing it or buying it.
05:05 And so when you do something like that, that is generally illegal. It's not always illegal.
05:11 There are a couple of loopholes in the securities laws. And, you know, the experts I talked to even disagreed on how common this is and how how prolific it is.
05:19 But it is generally illegal, but legal under some circumstances.
05:24 Regardless, the experts I talked to stressed this is not likely the reason that True Social stock has been swinging around so much.
05:32 It is far more likely that the stock price is connected to the fundamentals of the company.
05:39 And do you think or based on anyone you talk to that the reason it is going up and down, it's a roller coaster ride because Donald Trump is a polarizing figure?
05:48 He is divisive. You pretty much people either love him or hate him.
05:54 It's tough to say that, too. You know, Wall Street investors are investing to make money.
05:59 They're largely not doing so to make a political point or, you know, try to tank a political rival or candidate they don't like.
06:07 But, you know, the experts I talked to said that people don't care whether it's a company that's affiliated with Trump or not affiliated with Trump.
06:15 They're going to if they think a stock is overvalued, they're going to short it. It's that simple.
06:20 They think they can make money. They're going to try to do it.
06:23 Devin Nunes has taken his complaints to both the Nasdaq CEO.
06:27 And if we remember just a few years ago, he was a member of Congress.
06:31 He's also taken the complaints to former colleagues in Congress.
06:35 How did that go? And is anything going to come out of these inquiries?
06:40 We haven't heard anything yet about these inquiries. Nasdaq, when I reached out to them, they basically said that they're committed to transparency.
06:47 They support transparency and short selling. They gave me a short statement. That was really it.
06:52 And then when response to the congressional inquiries, I didn't get any responses from the congressional hearings.
06:58 But I do think it's important to underscore and some of the experts I talked to really, really emphasize this as well.
07:03 How odd it is that he is requesting an investigation into shorting of his stock.
07:09 This is a former member of Congress, a Republican, reaching out to members of his own party who are currently in Congress and who chair various committees in the House of Representatives, asking them to own running a company, by the way, that is the former president of the United States.
07:24 Also, Republican is the main shareholder of and that trades under his name.
07:29 And they're asking to investigate people who are short selling the stock of that company for vague and somewhat unclear reasons, basically asking to investigate any anomalous trading.
07:42 That's pretty odd. And if the Congress were to do that, I mean, it wouldn't exactly be the first time that Congress is doing something politically motivated.
07:50 But at the same time, it would be a pretty, pretty strange move. And I think it would make the markets a little bit more queasy there.
07:58 How strange do you think it would be if there's an SEC investigation? Does any sign point to that being likely?
08:07 So the SEC, you know, it's an expert run agency. It's run by people who generally are apolitical.
08:13 And I don't want to weigh in on whether or not there's going to be an SEC investigation.
08:17 For all we know, there really could be naked short selling the experts that, you know, illegal short illegal naked short selling happening.
08:23 The experts I talked to just said it's probably not a big factor here.
08:28 With regard to the SEC, you know, True Social has made a big point of the fact that it is on what's called the regulation SHO threshold list,
08:36 which is a bunch of jargon that basically means they're on a list of stocks in the Nasdaq that have slightly higher than normal rates of failures to deliver,
08:46 which can but is not always an indication of naked short selling.
08:50 And remember, naked short selling can but is not always illegal.
08:54 So you get several jumps of logic to make here before you get from.
08:58 Oh, and then when you're on the list, all that means is that you're going to get a little bit more scrutiny on the trading of your stock.
09:04 So you've got several leaps of logic from being on the list all the way over to the SEC determines that there might be illegal activity happening.
09:12 You pointed out in your reporting, the SEC actually answers this question about naked short selling.
09:18 Here's the question. Is naked short selling the reason my stock has lost value?
09:22 What's the answer? And what does this mean for Truth Social?
09:27 Yeah, I'm just going to read you the answer here, because I actually think it's just very succinct and illustrative.
09:32 The SEC writes in response to the question, is naked short selling the reason my stock has lost value?
09:37 Quote, the main factor determining the demand for a stock is the quality of the company itself.
09:43 If the company is fundamentally strong, that is, if it is generating positive income, its stock is less likely to lose value.
09:51 To be blunt, that does not sound like Truth Social. Truth Social is not generating positive income.
09:57 They made a four million dollars of revenue. They lost a net over 50 million dollars just last year.
10:03 This is not a company that is by the fundamentals doing particularly well.
10:07 Now, I should caution. It is a tech startup. Right.
10:10 Oftentimes tech startups lose money, especially in their first couple of years.
10:13 And they do have a lot of cash on hand. They don't have a lot of debt, as their spokesperson emphasized to me.
10:18 So, you know, there's an argument to be made that maybe they are building a business and over time it will generate positive income.
10:26 But the SEC's response seems to indicate that no, naked short selling is probably not the reason your stock price is going down.
10:32 The reason your stock price is going down is because you're not actually making money yet.
10:36 So by the fundamentals, you're saying Truth Social is not doing well. Is Truth a valuable company?
10:44 So we've talked about this a little bit before. It's a tough question to answer.
10:48 You know, when you have a meme stock, which a lot of folks I've talked to said that Truth Social appears to be,
10:54 its value is untethered to the actual fundamentals of the company.
10:59 So its current market capitalization is over six billion dollars.
11:02 That's larger than, for example, Alaska Airlines, which I plan on flying later this year.
11:07 And Alaska Airlines, unlike Truth Social, makes a heck of a lot of money, as far as I know, or at least makes a lot of revenues.
11:14 So there's another couple other ways to value it, right?
11:18 You can value it using, you know, what investors bought into the company app before it started trading publicly.
11:25 And that would value it in the hundreds of millions of dollars.
11:28 You could also value it by comparing it on a value per user basis to its competitors, like Twitter or Threads.
11:36 And if you do analyses like that, you're getting numbers in the 50 to 60 million range,
11:41 which, again, a lot smaller than that six billion dollar market capitalization that it has right now.
11:47 A lot of rollercoaster, a lot of plunging up and down prices.
11:51 What does all of this, what we're talking about, mean for Truth shareholders?
11:57 So let's remember the first and most important Truth shareholder is the former president of the United States.
12:02 He owns over 100 million shares of the stock. That's well over 60 percent of the company.
12:07 He actually just got a big windfall of those shares just this past week.
12:10 He got another 30 plus million shares.
12:13 So he's and the vast majority of his network, this is a billionaire running for president under criminal indictment in multiple jurisdictions,
12:22 civilly liable for lots of different criminal or excuse me, financial penalties, not criminal penalties.
12:28 He's got a lot of stuff on his plate and his net worth is tied inextricably to the value of this company stock.
12:36 So when the stock price goes up, his net worth goes way up. And when the stock price goes down, his net worth goes way down.
12:42 What about the rest of the shareholders whose names aren't Donald Trump?
12:48 Yeah, there's a lot of them. There's retail shareholders, right, who are just the everyday traders who, you know, again,
12:54 the speculation here is that a lot of them have bought in because they believe in the president or the former president,
12:58 not because they necessarily believe in the company, but some of them are probably buying in because they support Truth Social's mission.
13:03 They say that their goal is to build a social network that is free of censorship and free from big tech.
13:10 And they're trying to build a different kind of social network. That's their that's their idea.
13:13 And so, you know, there are people who believe in that and who are wanting to buy into that.
13:17 And so, I mean, it's the same thing if you're investing in a company and the stock price is doing crazy roller coaster moves,
13:24 you know, you're the value of your investment is going to go up and down and up and down.
13:29 Hopefully people are buying low and selling high as the as the old expression goes.
13:33 But, you know, it's tough to see whether or not that happens.
13:38 As you said, Donald Trump is the largest shareholder of Truth Social.
13:42 We also know he's involved in a lockup agreement that expires in a few months.
13:46 He cannot dump his shares until then. So let's say he does sell his shares after that.
13:51 What does that do to Truth Social? That sounds like basic supply and demand.
13:57 So if if Trump decides to put a bunch of his shares on the market, not even all of them, maybe just a few tens of millions.
14:04 He's got over 100 million after all. But if he decides to put, you know, even some of his shares on the market,
14:10 that's going to drive up the supply of shares currently available. That's going to drive down the price.
14:15 And so. That's not going to look good. I think some of the experts I talked to also said that the guy who owns a whole bunch of shares in a company starting to sell those shares in the company suggests and this is a company that trades under his name.
14:29 Maybe it's just he doesn't believe in the company's business potential as much anymore.
14:33 Otherwise, if you believe that the stock was going to go up, you hold on to your stock.
14:36 So that's not going to be good. And one expert I talked to even said that that could be weighing on the stock price right now.
14:43 That could be holding it down. The possibility that Trump could just wake up one day and have to face a legal penalty that he needs to pay or whatever and start selling.
14:53 Kyle Mullins, per usual. I enjoy our conversations every time. Thank you so much for your reporting.
15:00 Always happy to talk, Brittany.
15:02 Thank you.