Trump’s sons and the art of making millions from microcaps
The $1 billion vehicle, American Ventures, is the start-up of a Trump Tower-based boutique bank called Dominari Holdings, which counts Donald Trump Jr. and Eric Trump among its advisors and shareholders. He has so far invested in at least 10 so-called microcaps, generating millions of dollars in paper profits for the President’s sons and other limited partners, in part by using financial instruments called guarantees from the deals.
An analysis of recent transactions by Bloomberg News shows a pattern: The fund makes an initial investment or begins providing advisory services in a little-known company, such as a Florida toy maker or golf club operator. In return, American Ventures receives warrants. These contracts give holders the right to purchase shares at a certain price in the future.
Shares of these target companies can rise rapidly; at least once, the announcement of the Trumps’ attendance led to a 12% increase in a single day.
Earnings depend on the market value of the warrants, which can fluctuate sharply. Bloomberg’s calculations are based on publicly disclosed warrant terms and current share prices. Filings indicate that most warrants are immediately exercisable; but at least one deal included ownership caps that limited the number of shares American Ventures could buy at a time. It is unclear how much of the gains have been achieved.
It is not uncommon for warrants to be exercised. But American Ventures has one big advantage: Its involvement in some of the Trump brothers’ deals injects a dose of attention-grabbing star power.
Famous Volatility American Ventures’ investment model shows how big returns can be made from bets on small public companies, combined with complex financing deals and interest from high-profile connections connecting finance and politics. The result is a growing portfolio of paper earnings that underscore the financial strength of the family’s brand and the big returns that can come from its partnerships with smaller companies operating in lightly traded markets.
“Microcap stocks are notorious for the volatility and illiquidity of the shares,” said Jim Angel, a business professor at Georgetown University. “Prices can fluctuate dramatically with any hint of news.”
Eric Trump said in a statement that he was a “passive investor in American Ventures and had no management role.”
Big Profits
The way American Ventures is structured, each new transaction comes with a different group of investors, an average of 18 each. Last year, American Ventures secured nearly $60 million from Florida golf club operator Aureus Greenway Holdings Inc. Warrants allowed the fund to purchase shares at prices of $1 and $1.25. Since the stock was already trading above those prices, the warrants immediately became in-the-money, giving American Ventures the right to purchase shares below market price, subject to ownership limits in the deal.
