Newsmax’s Actual Malice
Reckless Disregard for the Truth
Newsmax closes any new applicants for preferred shares today at 5 PM Eastern. I began an application. They accept documents and payment next week for anyone who begins an application today. According to the company’s advisors, they expect to file their final Registration Statement with the SEC for their IPO allowing them to go public later this month. So far they raised $190 million and they’re raising up to an additional $35 million. Accredited investors can apply at www.NewsmaxInvest.com.
Why am I even slightly interested? I like the structure: a 7% dividend in shares and a 25% discount to the IPO share price. Prefs automatically convert to commons after the IPO. Also, I like that they take subscriptions via credit card. So for each $5k share I buy, I get $150 in cash back on my Robinhood Gold card and a $1,250 discount on the IPO price which they claim could come within weeks. There appears to be more demand than supply for right wing media stocks such as Rumble (RUM) and Salem (SALM).
They have a strong retail investor following that presumably overlaps with their viewers and listeners. The same could be true for Newsmax. In buying prefs, I’d be participating in a regulatory arbitrage where I buy as an accredited investor then sell when the opportunity opens up to everyone.
Why will I probably pass? Two main reasons:
First, it is not clear to me that the SEC will approve this S-1 on a timely basis. Any delay hurts the investment, both in terms of the IRR but also in terms of capturing this moment of right wing populist euphoria.
Secondly, there’s the reason that the SEC might slam the brakes: the company has a massive liability from defamation suits coming out of their 2020 election coverage. They made claims about Dominion Voting Systems and Smartmatic that resulted in libel lawsuits. They settled their Smartmatic suit but didn’t disclose the terms in the S-1 (if I were at the SEC, I would insist on it).
The Dominion Voting Systems suit remains outstanding. Dominion needs to prove actual malice — that Newsmax knew the statements were false or acted with reckless disregard for the truth. I think that they can meet that high burden of proof. There is about a two out of three chance that they would win if the case goes to a decision. Newsmax issued a retraction and correction but that doesn’t absolve them of this liability. Fox settled with Dominion for ~$788 million; such a settlement or loss would wipe out Newsmax investors.
Read the offering FAQs and PPM as well as the denial of Newsmax’s motion to dismiss the Dominion suit before making any decision. I did. What do I need to see in order to fund this subscription?
- Newsmax discloses their existing settlement
- They settle their remaining litigation on transparently attractive terms and
- Get SEC approval on their S-1
If these miraculously happen, then I will submit documents and payment by this time next week. My estimate is that each share is worth about the $1,400 per share of upside from the credit card cash back and the IPO discount under these terms. There is probably a 2% chance that they’re met, for a +$28 per share of expected value for getting my (er um long-suffering wife’s) foot in the door by filling out the application today.
