Trump Media is making a point of informing its shareholders about how to avoid their stock being leased to short sellers, who wager that the share price will fall.
The short-selling prevention tips posted Wednesday on Trump Media’s website come as the company’s DJT stock has fallen sharply in price since it went public on March 26—aand as short sellers have taken a keen interest in the owner of the Truth Social app despite relatively high fees to finance such trades.
“It certainly shows concern” about the short sale of Trump Media stock, said Kevin Murphy, a management professor at the University of Southern California and expert in executive remuneration.
“I haven’t seen it before,” Murphy responded when asked how usual it is for firms to give shareholders advice on how to combat short sellers.
“Managers who think the stock is undervalued aren’t going to be overly concerned about short sellers,” he added.
Trump Media’s stock jumped more than 21% on Thursday before losing some of its gains in afternoon trading. However, the share price was still more than 55% lower than when it opened on March 26.
On April 1, Trump Media announced a $58 million loss for 2023, with revenue of only $4.1 million.
Former President Donald Trump is by far Trump Media’s largest shareholder, owning approximately 60% of its stock. And his 78.75 million shares could shortly increase by 36 million shares if DJT’s price remains over $17 per share in the coming days due to an earnout provision in the merger agreement that brought the business public.
However, since late March, Trump, the expected Republican presidential nominee, and Trump Media have lost billions of dollars in market value due to falling share prices.
On Wednesday, following two days of steep price decreases, the firm posted an update to its frequently asked questions list on its website, which it described in an 8-K filing with the Securities and Exchange Commission on Thursday.
The addendum significantly expands on what was first provided on the FAQ on Wednesday, under the heading: “How do I prevent my shares from being loaned for a short interest position?”
Short selling is the practice of borrowing shares of a company’s stock and swiftly selling them for a set sum of money. The short seller then waits, anticipating that the share price will fall over time, allowing them to repurchase the same number of shares and return them to the lender, pocketing the difference between what they originally sold the shares for and profit after paying brokers’ costs.
“For long-term shareholders who believe in the company’s future, the company is highlighting the following actions you can take with your brokerage firm to prevent the lending of your shares for short selling,” Trump Media wrote in an update to its FAQ on Wednesday.
The recommendations include keeping DJT shares in a cash account at a brokerage firm rather than a margin account; “opting out of any securities lending program”; transferring Trump Media shares to the company’s designated transfer agent; and transferring shares to a bank and “holding them in your retirement account.”
The guidelines include a helpful form letter for shareholders to write to their brokers.
The text of the letter reads, “Please accept this written instruction to make sure that the following securities are held in my cash account only and accordingly are not available for any stock loan activities.”
“I hereby expressly opt out of any securities lending programs and instruct you not to loan out any of my shares,” the letter reads, before a section where the sender can fill out the amount of shares.
The lengthy instructions contrast with the much easier instructions released earlier Wednesday in the FAQ, which simply stated, “To prevent shares from being loaned for a short interest position, contact your brokerage to place restrictions on the lending of your shares to short sellers.”
