Welcome back to Dry Powder. I’m William D. Cohan. In tonight’s issue, news and notes on the latest meme stock frenzy to break out on Wall Street. As you might imagine, there are many curious things about Newsmax’s chaotic I.P.O., which briefly pushed the market value of Christopher Ruddy’s ostensible Fox News competitor over that of Rupert Murdoch’s Fox Corp. At least one new billionaire was minted, but as always, retail investors were left holding the bag… But first…

Wall Street on mute: The silence from most Wall Street executives about the economic insanity emanating from the Oval Office has been deafening—seemingly on par with Republicans in Congress, the majority of the Supreme Court, as well as some law firm partners and university administrators. So I have to hand it to Sujeet Indap, the Wall Street editor of the Financial Times, for calling out the limp response within the financial services community.Like me, Sujeet once worked as an investment banker at Lazard, and has since become a journalist and author. He co-authored, with Max Frumes, The Caesars Palace Coup, an account of Apollo Global Management’s disastrous $28 billion buyout of Harrah’s Entertainment Inc., the casino company, in January 2008. (TPG, an investor in Puck, was Apollo’s partner in the Harrah’s deal. Harrah’s later changed its name to Caesars Entertainment.) Years ago, I wrote about Sujeet’s book—in particular its crazy epilogue—for Vanity Fair. In any event, Sujeet has been taking Wall Street to task for its sins of omission. In the wake of Trump’s decision to defy the Supreme Court’s 9-0 decision requiring the administration to “facilitate” the return of Kilmar Abrego Garcia to the United States from an El Salvadoran gulag, Sujeet posted on X: “[P]eople every day just casually being disappeared off the street and Wall Street, corporate lawyers, C.E.O.s, all with their LinkedIn pages and P.R. and lobbying machines offering nothing but crickets. Don’t ever forget those who had power but chose to look the other way.” He followed with another post, aimed at Larry Fink, the powerful C.E.O. of BlackRock. Sujeet was rightly bothered by Fink’s refusal to publicly address the scandalous capitulation of Skadden Arps, one of BlackRock’s go-to law firms, after it agreed to provide more than $100 million in pro bono legal services for Trump’s pet causes, as part of the president’s scorched earth shakedown tour. When Fink was asked last week at the Economic Club of New York what he thought about the president using the power of the executive branch to attack law firms, he demurred, responding, “Let’s move on.” As Sujeet posted, “profile in courage from Larry Fink.” Leave it to my friend, the hedge fund manager Anthony Scaramucci, who served as Trump’s communications director for 11 days in July 2017, to speak frankly. In an interview with the FT, the Mooch explained, “They’re afraid of him. … They don’t want to end up with any legal action against their bank or their family. And they’ve been told by their boards: keep your mouth shut. By the way, we don’t even have law firms that can defend you, because every major law firm just got dunked on by the president.” We need more straight talk like this from the rich and powerful.

And now, to the main event…

Newsmax’s April Fools’ Flash Crash

When the Fox wannabe’s stock popped (and then plunged) after its I.P.O. earlier this month, the billionaires got out in time and retail investors got burned. Same as it ever was…

William D. Cohan

There are so many curious things about the recent I.P.O. of Newsmax, the conservative digital media and cable news company, but it all begins with the prospectus. Newsmax, of course, is the brainchild of Christopher Ruddy, the former New York Post journalist and longtime Trump buddy who is a regular presence at Mar-a-Lago. Ruddy founded the company in 1998, two years after Fox News first hit the airwaves, and built it up into a meaningful player in the ever-expanding right-wing media landscape. According to the I.P.O. prospectus, “more than 40 million” Americans read and watch Newsmax “each month” and it is now, by its own account, the fourth-most-watched cable news channel in the United States. Ruddy, Newsmax’s largest shareholder, owns 39.2 million Class A shares, each of which entitles him to 10 votes. Following the pricing of the small—$75 million—I.P.O. of newly issued Class B shares on March 30, with trading beginning on Monday, March 31, Ruddy beneficially controlled 83.1 percent of the voting power of the company.

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The other big shareholder in Newsmax is Thomas Peterffy, the conservative billionaire founder of Interactive Brokers and a fellow Mar-a-Lago habitué. Peterffy’s Conyers Investments owns 23 million Class B shares, but there are also hundreds of small investors who bought shares in Newsmax long before the I.P.O. Indeed, last July, Ruddy commandeered Newsmax’s website and urged people to buy Newsmax stock by going to Newsmaxinvest.com. “We hope hundreds of thousands of Americans like you will be co-owners of Newsmax,” he wrote. Parroting a Trump talking point, he added, “Newsmax is rising because Americans like you are tired of incredible media bias, now reaching a dangerous level.” Newsmax’s financial performance has yet to live up to the hype. Last year, the company generated $171 million in revenue and a loss of $72 million. It’s been like that for a few years, actually. Per the I.P.O. prospectus, in both 2022 and 2023, Newsmax had $135 million of revenue—so, no year-over-year growth. The difference between the two years’ financial performance was that, in 2023, Newsmax had a greater loss from operations ($45 million) than in the previous year ($19.5 million). As the company prepared for its liquidity event, it ramped up both revenue and costs. Obviously, this isn’t the kind of growth or profitability story that tends to excite investors. Newsmax is also potentially on the hook for some pretty sizable legal bills. Last year, the company ponied up a $40 million settlement to resolve a lawsuit by Smartmatic, the voting technology company, for promulgating bogus narratives about the 2020 presidential election. It’s also facing a trial later this month over a separate defamation claim brought by Dominion Voting Systems, which is seeking $1.6 billion in damages. Despite these obvious red flags, meme stocks just hit different. And Newsmax, it seems, was destined to become a meme stock. After its first day of trading on March 31, the stock, which was initially offered at $10, closed at $83.51, up 735 percent! That’s not a typo. Ruddy’s shares were suddenly worth $3.2 billion, making him the newest member of Trump’s billionaire boys club. The next day, April 1, the Newsmax shares were up another 180 percent, closing at $233, for a 2,230 percent gain in two days (it only seemed like it could have been an April Fools’ prank), and Ruddy’s stock was now worth $9.1 billion, making him richer than his buddy Trump. Newsmax’s market value, meanwhile, ballooned to over $30 billion, nearly 50 percent more than Rupert Murdoch’s Fox Corp., the very company Newsmax hoped to emulate. It was the theater of the absurd on Wall Street.

“A Rising Trump”

The recent backstory of Newsmax is instructive here. In June 2024, following a corporate reorganization, Newsmax was looking to raise equity in a private placement. The next month, Ruddy made his pitch to “hundreds of thousands of Americans” to become co-owners of the business. And in September, Newsmax closed on more than $40 million in proceeds from the private placement. Then this February, Newsmax closed on another $225 million in a preferred stock issuance. Also in February, two weeks after Trump’s inauguration, Newsmax initiated its I.P.O. process, attempting to raise another $75 million by issuing 7.5 million Class B shares at $10 each. A filing with the S.E.C. noted that Newsmax qualified to be an “emerging growth company” under the 2012 Jumpstart Our Business Startups Act, or JOBS Act, because it had less than $1.2 billion in revenue in its last fiscal year, among other criteria. (The JOBS Act allows such companies to file less information with the S.E.C. than is normally required.) You might expect that a high-profile company like Newsmax would hire a top-notch Wall Street firm to underwrite its I.P.O.—a seminal event in the life of any company, especially a 27-year-old “emerging growth company.” Naturally, you’d think Ruddy would want the proper distribution of company stock, relying on contacts with institutional investors in the stable of a well-regarded underwriter. Plus, an I.P.O. underwritten by one of the big investment banks would get more attention than one managed by a firm of lesser renown. Instead, Ruddy hired Digital Offering LLC, a “selling agent” that describes itself as a “global investment bank” helping public and private companies raise capital. Founded in 2013, Digital Offering is based in Laguna Beach, California—far from Wall Street—and is 90 percent owned by Cambria Asset Management, an investment advisor based in Manhattan Beach, California. According to the I.P.O. prospectus, Digital Offering employed its “best efforts” to raise the money Newsmax wanted.

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There was no guarantee that Digital Offering’s small team would be successful in raising the money—normally, an underwriter agrees to buy the stock from the company, and then turns around and immediately sells the stock to investors who have been identified in advance. So if there’s a slip between cup and lip, the company still gets its money, and it’s the underwriter that’s on the hook for trying to offload the stock it just bought. In other words, the underwriter takes on the risk. In return for its “best efforts” to sell Newsmax stock, Digital Offering would receive a 7 percent fee—fairly standard, especially for a small I.P.O. Far less standard—especially after Drexel Burnham blew up 35 years ago—Newsmax issued Digital Offering a five-year warrant to purchase 1.25 percent of the offering, at a strike price equal to 125 percent of the offering price. On March 30, Newsmax succeeded in raising its $75 million. The next day, the shares started trading, and that’s when things got crazy. I.P.O. shares are designed to “pop,” in Wall Street argot, meaning underwriters walk a fine line between undervaluing the shares, while also selling them for as much as they can. The idea is for the shares to trade up after the I.P.O. so that the underwriters’ best institutional investor clients get a quick return on their investment. While there is no typical I.P.O. pop, 10 to 15 percent or so is within the range of normalcy. Sometimes, of course, I.P.O.s trade down and are deemed “busted,” and investors lose money quickly. (The CoreWeave I.P.O., which I wrote about recently, was priced at $40 a share, traded up to as high as $64 a share and as low as $36 a share. It is now back to just above $40 a share.) But there is nothing typical about a stock so closely tied to the president, his politics, and his personal brand. After a call with Trump from the Oval Office five days before Newsmax’s I.P.O., Ruddy posted that he had told the president, “A rising Trump lifts all boats.”

Walking on Water

On March 31, of course, all hell broke loose. The Newsmax stock opened up 40 percent, at $14 a share. That’s a righteous “pop,” but not unprecedented. Then, as described above, things got meme-y: The value of Newsmax surpassed that of Fox Corp., and Ruddy’s paper wealth was on par with Laurene Powell Jobs’. But as quickly as the party started, it ended. On April 2, the stock crashed to $52 a share, from the previous day’s close of $233, a 78 percent collapse. On April 3, with the stock closing at just over $62 a share, it was time for everyone to get out—if they could. But even at $62, the stock was still up 520 percent in three days. That day, Newsmax filed a registration statement with the S.E.C. for a secondary offering of stock—no proceeds to the company—whereby a huge list of existing Newsmax shareholders were hoping to sell up to 121.3 million shares. Among those seeking to offload their entire stakes were Ruddy and Peterffy, who, when he’d been asked on April 1 if he’d sell his shares in the next six months, told the Financial Times, “One never decides an investment move … until the time comes.” I guess the time came on April 3. Another big seller was Sheikh Sultan bin Jassim Al Thani, a member of the Qatari royal family, whose Heritage Trust owned 19.7 million shares, then worth $1.2 billion. On April 4, Trump congratulated Ruddy on the Newsmax I.P.O., according to a post by Ruddy on X. But Ruddy wasn’t done with the financial engineering. On April 7, Newsmax entered into a “standby equity purchase agreement” with Yorkville Advisors, a New Jersey–based investment firm, to buy up to $1.2 billion in Newsmax shares at some point during the next two years. Yorkville is also in the Trump orbit, having bought around 20 million shares of Trump Media and Technology Corp. stock in 2024, helping the SPAC raise $450 million. But, as best as one can tell, Yorkville has not bought any Newsmax shares since April 7, nor have the many selling shareholders listed in the April 3 registration statement sold any of their shares. I’m betting they won’t be selling anytime soon. These days, the Newsmax stock trades around $28 a share, down 88 percent from its April Fools’ Day peak. The investors who bought that day, or the next, have been deep-fried. It’s always the retail investors who get seduced by the hype and who get burned, isn’t it? They never learn. Ruddy and Peterffy, of course, are laughing all the way to the bank. Ruddy is still a billionaire, but barely; his stock is worth about $1.1 billion these days. I’m not sure anyone before Ruddy has ever made so much money in the market, and then lost as much of it a week later. (Peterffy is worth $52 billion, so we don’t have to worry about him.) I reached out to Gordon McBean, the chairman and C.E.O. of Digital Offering to see if he had any thoughts on the crazy rollercoaster that was the Newsmax offering and its aftermath. “Can’t comment on market activity,” he explained, by email. “[H]ave seen this happen with other stocks in [the] past, which I’m sure you have also. Definitely caught the imagination of investors and created a lot of awareness for Newsmax. The I.P.O. investors (most of whom are Newsmax viewers/subscribers) have fared well.” I also noticed that Ruddy has stopped posting on X about the Newsmax I.P.O., probably for good reason. No doubt his attorneys at Sheppard Mullin, a Trump-adjacent law firm, told him to lie low. I’ll leave you, then, with Ruddy’s last post about the I.P.O., on April 4, which read, “Trump doesn’t walk on water, but he does turn water in [sic] wine.”

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