Digital World Acquisition Corp. (DWAC) faces a penalty of $18 million as part of a settlement reached with the Securities and Exchange Commission (SEC) regarding fraud allegations related to its dealings with Trump Media & Technology Group (TMTG).

The special purpose acquisition company (SPAC) was accused of making material misrepresentations to its investors by not disclosing its plans to acquire the social media company formed by former President Donald Trump. The SEC also alleged DWAC “mischaracterized and omitted information about the history of its interactions with TMTG” in filings with the agency, according to a press release Thursday.

DWAC will be fined $18 million in the event it closes a merger transaction, which it is still pursuing with TMTG. The penalty will be waived should the SPAC be dissolved and money returned to investors before January 2025.

The details: The SEC’s allegations focused on a September 2021 filing with the agency by DWAC in support of its initial public offering (IPO). In that filing, the company said neither it nor its leaders had “‘initiated any substantive discussions, directly or indirectly, with any business combination target,’” according to the SEC’s order.

But the agency found the former chief executive and chairman of DWAC was involved in merger discussions with TMTG dating back to February 2021. These talks continued into the summer as part of a plan to solicit certain pre-IPO investors, the SEC alleged. The agency also cited DWAC for failing to disclose its CEO had a potential conflict of interest regarding their dealings with TMTG.

“In the context of a SPAC—a ‘blank-check’ entity without business operations—these disclosure failures are particularly problematic because investors focus on factors such as the SPAC’s management team and potential merger targets when making financial decisions,” said Gurbir Grewal, director of the SEC’s Enforcement Division, in the agency’s release.

Company response: Patrick Orlando was fired by DWAC as CEO in March. Eric Swider was appointed as permanent CEO on July 10.

“This is an important milestone for us, as it clears the path for the SEC to review our expected upcoming filing of the registration statement related to our proposed merger with TMTG,” said Swider of the settlement in a press release. “Subject to further SEC review of our future filings related to the merger, we are eager to move forward the consummation of the business combination with TMTG, and we look forward to TMTG’s cooperation in this regard.”