Former U.S. president Donald Trump’s social media startup gained 16 per cent in its first trading day as a public company, after the most high-profile blank-check deal in years added billions to his fortune — at least on paper.

Shares of Trump Media & Technology Group Corp. rose as much as 59 per cent before paring gains, closing at US$57.99 each on Tuesday. The trading after the closing of the merger with Digital World Acquisition Corp. values the unprofitable company at $7.9 billion, capping an eye-popping meme stock run, and providing a potential windfall for Trump as he faces a mounting series of legal and financial woes.

Trump’s nearly 60 per cent stake in the unprofitable company behind Truth Social may ultimately be worth more than $6 billion, based on its filings with the U.S. Securities and Exchange Commission. However, he can’t sell the stake immediately due to a six-month lock-up agreement, hindering his ability to monetize the shares and ease his present cash crunch. As much as $1.6 billion of that paper wealth is also dependent on shares meeting performance requirements.

The company’s post-merger performance on the Nasdaq under the symbol DJT will test Trump’s ability to capture the attention of individual traders and momentum investors who use it as a way to bet on his push for re-election.

It has become the most expensive U.S. stock to sell short, with short sellers paying over 200 times the average cost to borrow the shares, according to financial analytics firm S3 Partners.

Traders piled into the stock on Tuesday in a session that was briefly halted for volatility, with nearly 54 million shares changing hands — close to 12 times its average 10-day volume, data compiled by Bloomberg show.

After two years of snags on the way to a listing, however, including investigations from the Justice Department and the U.S. Securities and Exchange Commission, the money-losing company may have difficulty convincing some investors focused on the long term.

Its operations have so far struggled to generate a profit, losing $49 million in the nine months through September while delivering just $3.4 million in revenue.

“The underlying business fundamentals will matter at some point. The stock can defy gravity for only so long,” said Julian Klymochko, chief executive officer of Accelerate Financial Technologies. “DJT is the mother of all meme stocks.”

Legal troubles

The potential funds come at a critical time for Trump, who is paying millions of dollars a month to fund his ongoing legal troubles. He’s set for the first of his criminal trials on April 15, and a New York judge has already imposed an order banning him from making statements about witnesses, lawyers or jurors.

Separately, Trump was ordered by a different judge last month to pay $454 million after a civil ruling that he had fraudulently inflated his wealth for years. While a New York appeals court agreed on Monday to slash the amount the former president would have to put up as a bond while he contests the verdict, he is still required to post $175 million within 10 days.

As the Trump Media deal became a political lightning rod, retail investors embraced the company and its stated mission fighting against big tech companies like Meta Platforms Inc., Netflix Inc., and Elon Musk’s X, even as the merger’s winding multi-year path to completion triggered a wave of skepticism from most of Wall Street.

The SPAC soared 185 per cent this year through Monday’s close in anticipation of the merger, mirroring Trump’s electoral fortunes as he bulldozed his way toward the Republican presidential nomination.

But unless management moves to expedite the process, Trump and other Trump Media insiders with stakes can’t sell any shares for roughly six months.

The seven-person Trump Media board of directors, the group that would potentially give the green light to the former president to sell shares before September, is made up of a range of ex-members of his administration. Among them are former U.S. Trade Representative Robert Lighthizer, former head of the Small Business Administration Linda McMahon and former Trump defense official Kash Patel.

Devin Nunes, a former California Representative who left Congress to become CEO of Trump Media, Trump’s son Donald Trump Jr. and Digital World’s CEO Eric Swider are among the other board members.

Meme stock

In the lead-up to the deal’s completion, Trump Media had warned it could go bankrupt without the SPAC merger. Having avoided that fate, the next challenge will be avoiding the fate doled out to many so-called meme stocks — a name coined during the height of the pandemic for companies whose trading appears detached from reality.

If Trump and other insiders sell shares before the six-month lock-up period, it could trigger a selloff as the market would likely be inundated by sellers.

“A problem for meme stocks is that the supply of shares that are tradeable, known as the public float, rather than the fundamental value of a share, is an important determinant of the price,” said Jay Ritter, a finance professor at the University of Florida. With the shares available for trading potentially accounting for just a small percentage of the total outstanding, a sale by Trump or other insiders after the lock-up ends could spark a rapid decline.

“In the short run, anything can happen,” said Ritter. “But buying an overvalued stock hoping to sell it at any even higher price is known as the greater fool theory of investing.”