Digital World Acquisition Corp. (NASDAQ: DWAC) reported Friday that the special purpose acquisition company (SPAC) had received notice from an unspecified number of investors demanding the return of their investment in Digital World. The company had struck a deal a year ago with Trump Media and Technology Group, the former president’s then-new media company, to take the company public through a SPAC merger.

According to Friday’s filing, investors in a $1 billion private investment in public equity (PIPE) offering have terminated $138.5 million of the PIPE. Under the terms of the SPAC deal, Digital World had 12 months to complete the acquisition and those 12 months expired on September 20. Digital World had promised to invest $293 million in Trump Media. For their $1 billion in cash, PIPE investors would receive 100 million convertible preferred shares.

Reuters reported that one PIPE commitment of $100 million by Sabby Management has been terminated. It is also possible that more investors will ask for their money back now that the SPAC deal has sputtered. The company has extended the original 12-month period by three months, but still needs approval from 65% of investors to prevent liquidation.

The U.S. Securities and Exchange Commission (SEC) has been reviewing Digital World’s proposed IPO, but no decision has been released. A grand jury in New York subpoenaed records from Trump Media in June, and that investigation has not been concluded yet. Digital World revealed earlier this month that in addition to the SEC, the Financial Industry Regulatory Authority (FINRA) also has been investigating the deal, but no details were provided.

Trump Media has raised about $38 million in loans and bridge financing to keep the lights on, but the company is barred from raising more than $50 million in debt financing before the IPO.

Trump Media’s valuation was around $875 million when the deal was announced last October. The share price of Digital World soared to more than $90, valuing the blank-check company at more than $10 billion in January of this year.

The PIPE investors were to receive convertible preferred shares in Trump Media (after the IPO) and would have been able to exchange those shares for common shares based on the value-weighted average price (VWAP) over the 10 days following the IPO. The lower the price, the more shares the investors would have received.

Forbes explains what happens next for PIPE investors:

It is clear that they want the price during this VWAP period to decline to at least $16.67 to get their maximum share allocation of 100 million shares. The PIPE investors can potentially dump 30 million or more shares on the market during the VWAP period to achieve their goal. Furthermore, the PIPE investors can also short at any price above $33.60 during the VWAP period. Therefore, it seems logical to expect the price to be pushed down during the VWAP period, as close as possible to $16.67.

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Non-PIPE investors, of course, want the share price to rise, but that will only happen if the SEC approves the deal. If it does happen, then PIPE investors can sell their common shares or sell the shares short:

Informed traders know the motivations of the PIPE investors; therefore, given SEC approval, as the merger closure approaches, we can expect some of these traders to sell their shares if they have not already, and others will short sell, pushing DWAC’s price down. If desired, they could buy back during the VWAP period. In addition, immediately after the merger, during the VWAP period, we can expect an increase in share sales and short selling by the PIPE investors.

Digital World stock traded at around $15.70 in Monday’s premarket, down about 4.9% from Friday’s closing price of $16.50. Average daily volume on the stock has been right around 1.25 million shares traded. Expect that number to rise. What happens with the price is trickier to predict.

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