Trump Media & Technology Group Corp. sank in late trading after the US Securities and Exchange Commission declared effective a regulatory filing that could dilute shareholders.

The long-awaited clearance lets investors in the firm’s derivatives, known as warrants, swap their holdings for shares in the company which can dilute long-time investors. The social media company that’s mostly owned by former president Donald Trump fell roughly 15% to around $26 in late trading, adding to a 36% slide this month through Tuesday’s close.

“With our S-1 declared effective, we’re expecting to be well positioned to energetically pursue TV streaming, other enhancements to the platform, and potential mergers and acquisitions,” said Trump Media Chief Executive Officer Devin Nunes. Nunes in recent weeks has written letters to Congress and other regulators to pursue claims of an illegal form of short selling.

The warrants could be exercised adding up to US$247 million to Trump Media’s balance sheet, but also adding millions of shares to the pool of stock available for trading, a Tuesday filing shows. Historically, a portion of investors that exercise the warrants will in turn sell the shares they generate which in turn creates selling pressure.

The warrants fell 32% to US$14 a piece in late trading after closing at the lowest level since early May. Also known as sweeteners, they’re a common part of special purpose acquisition company deals and are designed to reward investors, while diluting the value of ordinary shareholders’ stakes through the issuance of millions of extra shares.

The former president is Trump Media’s largest stakeholder, with nearly 115 million shares worth nearly US$3 billion on paper. However, he and other insiders are restricted from selling stock until September due to a lock-up provision. That restriction could be moved up if the company’s board waives or pulls forward the expiration of the terms.

Trump Media, which owns Truth Social, has been volatile since going public earlier this year with the stock soaring as high as $79.38 in the days after its debut before sinking as low as US$22.55 in the weeks after.

  - Bloomberg