Investors drive up Trump-linked SPAC by more than 350% in one day

Wall Street and Main Street investors are racing to bet on former President Donald Trump’s newest venture.

Or at least, day trading in shares of the SPAC planning to bring the company public.

Digital World Acquisition Corp. surged in trading Thursday following news that the special purpose acquisition company would be bringing Trump’s Truth Social into the public markets—if all goes according to plan. The stock was up more than 400% in the early afternoon, hitting more than $50 a share at several points before falling slightly. Volumes were beyond heavier than usual with 471.8 million shares traded as of the market close Thursday, marking a 67,492% increase from the day prior, according to data from MayStreet that was provided to Fortune. The stock price closed trading up 356.8% on the day at $45.50.

“I can’t think of any deal that comes close to this,” University of Florida finance professor Jay Ritter told Fortune of the investor interest.

Led by veteran SPAC sponsor Patrick Orlando, who owns nearly 15% of its common shares outstanding, Digital World Acquisition began trading on Nasdaq in September. Its backers include hedge funds like Lighthouse Investment Partners, Highbridge Capital Management, and D.E. Shaw, according to regulatory filings.

The deal between Digital World Acquisition and Truth Social was announced late in the day Wednesday, and set off a frenzy of interest across the financial and political worlds in both the SPAC and Trump’s new company. Truth Social, which bears a more-than-striking resemblance to Trump’s once-beloved Twitter, has already potentially been on the receiving end of a hacking attempt.

Many companies, including SoFi, Lucid Motors, and WeWork have gone public by merging with SPACs, which are effectively skeleton companies whose management teams use a bundle of cash raised in the IPO to acquire a private company that then takes over its listing. The sponsors who create the SPAC, in return, are often rewarded with lucrative packages that can sometimes give them control over 20% of the combined company’s shares. The structure saw a boom in the first quarter that ended up creating a voracious loop of new vehicles being created by everyone from Shaq and Alex Rodriguez to Bill Ackman and Wilbur Ross. But the SPAC market suddenly came to a halt soon after, with institutional investors beginning to express concern about an oversaturated market and the Securities and Exchange Commission rolling out new SPAC accounting guidance that caused a weeks-long pause in new listings. It has only just begun to show signs of renewed life in recent weeks.

In 2021, a total of 486 SPACs have debuted in the U.S., raising $135.8 billion in the process, according to SPAC Research. By comparison, 247 SPACs listed in the U.S. a year ago, having raised $83.4 billion.

Surging prices in SPACs before a deal closes have been a point of concern for many in Washington, D.C., in 2021, including the SEC.

Chair Gary Gensler has been an outspoken proponent for more disclosures about the SPAC model, including around the divide between the structure’s economics for its sponsors and for its other investors. For instance, when a SPAC goes through the IPO process, its units, which consist of common stock and warrants that allow the holder to buy more shares later, are typically priced at $10 each, though those are often only available at that price to the sponsors and large institutional investors on the deal.

Once a merger is announced and before it closes, the SPAC’s investors have the ability to redeem their shares for the per-share amount being held in the SPAC’s trust account, which in this case would be $10. So, for those earliest investors, the risk is minimal. But when a SPAC surges in secondary trading, it can create a dramatic discrepancy between the amount investors who bought it later paid and the floor they can redeem at.

“Unlike a traditional IPO of an operating company, the SPAC IPO price is not based on a valuation of an existing business,” the SEC warns on its website. “When the units, common stock, and warrants…begin trading, their market prices may fluctuate, and these fluctuations may bear little relationship to the ultimate economic success of the SPAC.”

Updated, Oct. 21, 2021: This story has been updated with trading volume for Digital World Acquisition Corp.