Trump media deal partner advisers were reprimanded by the SEC

Yunhong Green Cti

29/10/2021 10:00

By Echo Wang and Krystal Hu
    Oct 29 (Reuters) - Donald Trump's social media deal partner
took advice from a group of China-based businessmen who in the
past tried their hand at businesses ranging from Spanish wine to
Korean women's fashion, and at one point had their “integrity”
questioned by U.S. regulators.
    The financiers - Abraham Cinta, Sergio Camarero, Carlos
Lopez and Jesus Emilio Hoyos Quintero - are managing partners of
ARC Group Ltd, a Shanghai-based investment bank listed in a
regulatory filing as a financial adviser to Digital World
Acquisition Corp  DWAC.O , the shell company merging with the
former U.S. President’s venture. 
    The chief executive of Digital World is Patrick Orlando, who
has acted as the special purpose acquisition company's (SPAC)
public face. Digital World touted ARC in one filing as adviser
that had contacts in government, corporate, investment and
advisory worlds and would help it "get access to quality deal
pipeline."
    A review of regulatory filings shows that while ARC has been
actively involved in the creation of SPACs, especially over the
past two years, its executives ran into trouble with the U.S.
Securities and Exchange Commission (SEC) in 2017. The regulator
sued to block the initial public offerings of three companies
where the four men had leading roles, accusing them of
misrepresenting their connections, misstating the nature and
scope of their businesses and failing to cooperate with
regulators. 
    The executives did not show up at hearings, and a judge
entered default judgment in the regulator's favor, regulatory
filings show. The result was a rare so-called stop order, which
prohibited the executives from taking their companies – Go EZ
Corp, Arc Lifestyle Group Inc and Nova Smart Solutions Inc -
public. 
    Go EZ sold smartphone accessories, Arc Lifestyle sold
products such as designer apparel, Spanish wine and olive oil,
and Nova’s business included drone development and corporate
staffing service, according to the filing.
    Respondents are in default for failing to file an answer,
appear at the hearing, or otherwise defend the proceeding,"
wrote Cameron Elliot, an SEC Administrative Law Judge at the
time. Their actions "call into question management's integrity."
    Elliot, who is now an administrative law judge at the U.S.
International Trade Commission, told Reuters he did not have any
additional information about the case. 
    Camarero, one of the managing partners of ARC Group, was CEO
of Nova Smart. In an email to Reuters, he said he cooperated
with regulators, taking their calls and providing them with his
email communications. But when they asked him to fly to
Washington, he couldn't for "personal and business reasons." 
    "The process was getting very troublesome and consuming my
time," he wrote in an email. He said he decided to try to run
the company privately but eventually had to liquidate it.
    "Obviously, I was a collateral damage," he said. 
    In the ruling, the judge noted that Camarero had made
documents available and participated in phone calls but declined
to provide testimony in the United States. 
    Cinta, the CEO of Arc Group, Lopez and Quintero did not
respond to requests for comment. An SEC spokesperson also did
not respond to a request for comment.
    Reuters could not determine what Trump or his company, Trump
Media & Technology Group, knew of the ARC Group bankers'
involvement in Digital World or their past troubles with
regulators. 
    Trump Media & Technology Group and Digital World did not
respond to requests for comment. Orlando, who has worked on at
least three other special purpose acquisition companies with
ARC, also did not respond to requests for comment.
    Stop orders, such as the one against the ARC executives, are
extremely rare; only five have been issued by the SEC since the
case against the ARC executives four years ago. 
    Christina Thoma, a partner at law firm Mayer Brown LLP and
former SEC senior adviser who was not involved in the Trump SPAC
deal, called the stop order an "extreme" step. 
    "Most enforcement actions brought against companies for
having materially false or misleading disclosure don't result in
a stop order, as the SEC has the ability to seek different
penalties," she said.
    Perrie Weiner, securities litigation attorney with Baker
McKenzie, said the judgment could become an issue if the
executives ever became subject to another SEC probe or investor
lawsuits.
    However, Weiner noted that the judgment against the four
dealmakers was not a finding of fact. "It’s like if you get a
moving violation and don't show up for your court hearing, and
they issue a judgment against you for non-appearance and
non-cooperation."
    
    GLOBAL EXPANSION
    Regulatory filings and investor presentations prepared by
ARC Group show that the firm has thrived in recent years,
helping clients overcome investment barriers into the United
States that Trump erected for Chinese investors.
    It went from one to 15 offices around the world, completing
$1.8 billion of deals, according to its website. The firm also
said it created and advised more than 30 SPACs, the vast
majority of them in the United States, according to an investor
presentation. 
    Digital World shares are up more than 600% since the deal a
week ago, and ARC Group seized on the rally to promote its
business in China. It sent a Mandarin translation last week of a
Reuters story on the merger to subscribers of its channel on
Chinese messaging app WeChat.
    "Trump's company merges with our SPAC, shares jumped 400%!"
it wrote. 

 (Reporting by Echo Wang in Las Vegas and Krystal Hu in New York
Editing by Greg Roumeliotis and Edward Tobin)
 ((Greg.Roumeliotis@thomsonreuters.com; +1 646 223 6022; Reuters
Messaging: greg.roumeliotis.thomsonreuters.com@reuters.net))