Trump Media's fight turns to 'legal' short selling, as 'DJT' shares rise again

By Tomi Kilgore

The Truth Social parent company's stock price has more than doubled since April 16

Shares of Trump Media and Technology Group Corp. rallied again Monday, and have now more than doubled over roughly two weeks, after the latest assault by the parent of Donald Trump's social-media platform Truth Social against short selling - this time of the legal variety.

The stock (DJT) rose 10.8% in afternoon trading, and has rocketed 101.5% since it closed at a three-month low of $22.84 on April 16.

DJT shares plunged 65.5% from March 27 through April 16, after the initial euphoria faded over the closing of the merger that took Trump Media public.

Although data suggest the declines weren't the result of short selling, Trump Media Chief Executive Devin Nunes recently sent notices to market regulators and Congress blaming illegal market manipulation - specifically "naked" short selling - for the stock's weakness.

Also read: Trump Media CEO renews assault on 'DJT' short sellers - but the math doesn't add up.

A short sale, or bearish bet against a stock, is a legal trading strategy that entails the borrowing of shares that are already owned by someone, so that it can be sold with an aim to buy it back at a lower price. A "naked" short sale is the illegal act of shorting a stock before it is borrowed.

Yet in a Monday press release, the company didn't mention potential "naked" short selling but instead provided details on what investors can do to stop legal short selling.

Read more: The mechanics behind legal, and illegal, short sales.

Trump Media, which Donald Trump owns a 64.9% stake in, said that its shareholder base "primarily consists of retail investors" who hold their stock at various brokerage firms.

The company said it wanted to "clarify" that shareholders have the option of asking their brokers to recall their shares, so they can't be lent out by the brokers for the purpose of short selling.

"After recalling their shares, long-term shareholders who believe in the company's future can then hold their DJT shares in a cash account, opt out of any securities-lending programs, or move their shares to a Direct Registration ('DRS') account at the company's transfer agent, Odyssey Transfer & Trust Company," Trump Media said.

The company even provided a sample of a letter or email that investors can send to the manager of their brokerage account to move the shares to a cash account.

Securities-lending platform EquiLend's Orbisa service, which tracks the securities-lending industry's daily transaction activity, reported last week that it already remains very difficult to borrow DJT shares so they can be shorted. According to Orbisa, about 2.5 million shares were available for lending programs, while 38 million shares were marked as nonlendable.

Attempting to prevent legal short selling could be considered as going against Trump Media's mission to create a "free-speech beachhead." The company claims its Truth Social platform is a "safe harbor for free expression amid increasingly harsh censorship" by Big Tech companies.

Yet some would deem selling a stock short as a form of free expression by investors. As Bernard Baruch is credited with saying more than 100 years ago, to enjoy the advantages of a free market, one must have both bulls and bears.

"A market without bears would be like a nation without a free press," Baruch is often quoted as saying.

Additionally, many on Wall Street see levels of short selling as a contrarian indicator - the more shorts that exist, the more support there will be on declines, or the more likely a rally will accelerate. Basically, the idea is that if someone is short on a stock, the next move is to buy.

Trump Media did note there are downsides to investors transferring their shares out of a brokerage account.

"Please note that investors may incur certain costs in connection with transferring shares out of a brokerage account and, once their shares are moved to our transfer agent, their ability to timely transfer their shares back to a brokerage firm and sell may be a longer process," the company said. "Holding shares in physical-certificate form involves risk of loss or destruction where a bond of indemnity is required to replace the certificate(s)."

-Tomi Kilgore

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04-29-24 1500ET

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