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SEC Charges Trump Media Auditor with ‘Enormous Fraud,’ Bans from Public Company Audits: A Thriller Unfolds

Background

The Trump Media & Technology Group (TMTG), the media venture of former President Donald Trump, has been under scrutiny due to an accountant’s tax fraud who was closely connected to the SPAC Digital World Acquisition Corp (DWAC) and Trump’s Truth Social platform. This latest development presents a potential challenge for the emerging company. AuditBoard, the auditor in question, has been charged by the U.S. Securities and Exchange Commission (SEC) with a ‘massive fraud,’ resulting in a ban from conducting public company audits.

Charges Laid

From the regulatory standpoint, the restriction imposed on the California auditing firm, Cavalluzzo, is a hefty one. After an investigation, the SEC accused the firm and its owner, John Cavalluzzo, of backdating and fabricating audit documentation and concealing those maneuvers from PCAOB inspectors. This unprofessional conduct involved the forging of records for at least seven different clients, adding to the severity of the offence.

According to the SEC, such fraudulent actions undermine the financial system’s integrity, and it’s the Commission’s duty to protect investors by maintaining companies’ credibility and their auditors. When auditors like Cavalluzzo fail in their duties, they risk severe penalties.

Cavalluzzo’s Connection to DWAC and TMTG

The connection between Cavalluzzo and Trump Media and Technology Group emerges through DWAC, a blank-check acquisition company. DWAC reported that it would merge with TMTG to bring it to the stock market in October 2021. Cavalluzzo was the auditor for the financial statements included in DWAC’s initial registration statement filed with the SEC. Those financial statements show no operations and minimal financial activities.

As part of his settlement, Cavalluzzo agreed to give up his right to appear and practice before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies.

Implication on TMTG

So far, there is no specific allegation that Cavalluzzo’s fraudulent actions directly impacted TMTG. However, its relationship with DWAC might influence investor confidence. TMTG and its Truth Social platform are already under scrutiny due to the former president’s involvement, and this association with fraudulent activities could increase doubt and skepticism among stakeholders and potential investors.

Overall, while Cavalluzzo’s case brings negative publicity to TMTG, it also serves as a cautionary tale for the auditing industry. It is

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