Economics and Damages in 2024: New Business Models, Technologies, and Regulations
Frank Dery and Urmi Mukherjea
For litigators, expert witnesses, and industry leaders, 2024 will be anything but business as usual.
The high-interest-rate environment and decreased mergers and acquisitions (M&A) activity the market has endured over the past year has led to an uptick in M&A-related disputes, including fraud-related investigations. The new year will likely provide similar trends, as aggressive valuations sought by sellers will come into question if newly acquired companies fall behind buyers’ expectations.
Yet it’s not all bad. Dealmakers have adapted to stubborn macroeconomic headwinds and may see a respite in the form of a Federal Reserve rate cut as early as March 2024. Should that happen, deal activity could accelerate, bringing with it greater demand for expert counsel.
Below, we highlight major developments—and how business leaders can prepare for the year ahead.
Safe Harbor policy could reshape due diligence in M&A transactions
A sea change in compliance and reporting could be just around the corner. Unveiled in October, the Department of Justice’s Safe Harbor policy encourages buyers to voluntarily self-disclose criminal misconduct discovered in an M&A transaction within six months of closing and to fully remediate the misconduct within one year. Although timelines may be extended for buyers acting in good faith, those that have historically focused on synergies and cross-sell opportunities at the expense of compliance due diligence will have to strengthen their compliance programs—and quickly.
“Companies can reach out to their advisors and develop a flexible compliance plan that can be amended quickly as rules evolve. ”
We may begin to see cases prosecuted before companies catch on, as with regulations like the Foreign Corrupt Practices Act (FCPA). It’s possible that due diligence centered around the Safe Harbor policy—not unlike FCPA-related due diligence—will become a staple of M&A transactions moving forward.
Recent court rulings could impact how digital asset platforms operate
Cryptocurrency and digital asset exchanges selling to institutional investors soon may find themselves changing course. Two district court judges in the Southern District of New York recently issued rulings that could impact whether secondary-market digital asset sales are subject to securities law and could fall under the purview of the Securities and Exchange Commission (SEC). While the rulings conflict with each other, the US Court of Appeals for the Second Circuit could weigh in as early as next year. The final decision could have a profound impact on this, and other cases centered around cryptocurrency exchanges.
Artificial intelligence creates new challenges, and regulation is on the way
Inaccuracies stemming from the use of generative AI could highlight the need for public disclosures of its use in certain types of work. For instance, a bank relying on the technology to structure a bond payout may be required to release how—and in what capacity—such tools were leveraged. The Biden administration has already garnered commitments from leading companies to manage the risks of AI via greater transparency, and bipartisan legislation requiring generative AI developers to identify AI-generated content was introduced in October. We could see further regulatory shifts in this space as soon as next year.
How to Prepare for 2024
When it comes to new and impending regulations, don’t sit back and wait. Companies can reach out to their advisors and develop a flexible compliance plan that can be amended quickly as rules evolve.
As for new technologies like AI and digital assets, remember that, for better or worse, the onus of explaining these innovations—and the new ways of working that come along with them—largely falls on industry’s shoulders. Take the economics of platforms, for example, in which monetization can center around selling customer data to potential advertisers, rather than charging customers for a product or service. While this paradigm is not new, its complexity, profitability, and prominence in the economy have intensified recently. When disputes arise in areas like these, judges, juries, and factfinders must be able to comprehend this complex subject matter as it relates to, say, damages or securities fraud to render effective rulings. To facilitate their understanding, companies should bring in experts to assist counsel in the development of case strategies and prepare reports that outline how these new models work.
Frank Dery is a managing director based in BRG’s Chicago office. As a certified public accountant, he is well versed in providing litigation support services for both public and private clients and performing various types of accounting investigations.
Email: Fdery@thinkbrg.com
Phone: 312.636.3430
Dr. Urmi Mukherjea is an economist with more than fifteen years of experience in litigation support, economic consulting, and research engagements for law firms, corporations, financial institutions, and government agencies. She is a managing director based in BRG’s San Francisco Bay Area office.
Email: UMukherjea@thinkbrg.com
Phone: 847.962.7640