Trump Media steps up war on short selling with advice for retail investors on how to stop brokers lending their shares

By Ciara Linnane

Former president's media company has asked the SEC to investigate potential illegal activity in selling of its stock

Trump Media & Technology Group Corp. stepped up its battle against short selling of its stock on Tuesday with advice for retail investors on how to stop brokers from lending out their shares.

Retail investors, who account for the bulk of former President Trump's media company's stock (DJT), can take certain steps to clamp down on short selling, which brokers engage in to earn extra revenue from more sophisticated institutional investors, the company explained in a statement.

In a short sale, an investor borrows shares from someone else, then sells them and waits for the stock price to fall. When that happens the shares can be bought at a cheaper price and returned to the prior owner, with the short seller pocketing the difference as profit.

Brokers lend the shares from margin accounts, so one way a small investor can stop the practice is by placing their shares in a cash account instead, Trump Media said in the statement.

They can also opt out of any securities-lending programs and can move their shares to a direct registration account at the company's transfer agent, Odyssey Transfer & Trust Co., said the statement.

It included a sample letter for retail investors to use to direct their broker not to allow their shares to be made available for lending.

The news comes just days after Trump Media Chief Executive Devin Nunes asked regulators to look into potential illegal selling activity of the stock in the form of naked short selling.

A naked short sale refers to the illegal act of selling a share before it is borrowed. Read more about the mechanics behind a short sale.

The naked-short-selling allegation came after a steep selloff of the shares, which are now down 47% in the month to date. The stock fell more than 2% on Monday, when the first-ever criminal trial of a former U.S. president began.

When the stock started trading under the "DJT" ticker symbol, Ihor Dusaniwsky, managing director of financial analytics at S3 Partners, told MarketWatch that because there weren't many shares available to borrow and demand to short the stock was "extremely high," borrow rates were as high as 500% to 600%.

Separately, Trump is on the verge of being awarded shares worth more than $1 billion in the company, which is parent to his Truth Social platform. That's because he's in line to receive an additional 36 million earnout shares in the company that are currently worth that, at least on paper.

Trump is not allowed to sell stock until a six-month lockup period expires in September.

Read also: Trump's Truth Social to launch live TV service, but 'DJT' stock keeps sinking

To be eligible for that award, the stock had to stay above $17.50 for 20 out of any 30 trading days during a three-year period following the company's merger with a special-purpose acquisition corporation, or SPAC, in March. That deal allowed the company to become publicly traded.

The stock closed Monday at $35.50, and Tuesday is the first day that the stock will meet the 20-day requirement. The stock was last down 7.9% at $32.68.

Trump Media lost $58.2 million in 2023 on sales of $4.13 million. That was wider than the loss of $50.5 million posted in 2022, when the company had sales of $1.47 million.

Don't miss: Trump on track for $1 billion stock bonus-while outside investors lose up to 50%

-Ciara Linnane

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04-24-24 0825ET

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