2022 Year in Review
Welcome to the December 2022 edition of our newsletter! In this issue, we’ll examine the year that was, and look ahead to risks on the horizon for the year ahead.
Bubbles Bursting Before Bubbly Pours: Top Fraud Trends of 2022
2022 was a year of innovation and inflation, disruption and discontent. Several newer asset classes – notably cryptocurrencies and special purpose acquisition companies, or SPACs – have faced a reckoning this year whose reverberations may have only begun. While both have suffered as “free money” propelled by low interest rates has dried up, fraud has also played a role in the swift, painful decline of companies in each industry. As a well-known, well-heeled cryptocurrency magnate begins to face fraud charges related to billions in losses for his clients, several SPACs have also faced increased scrutiny for failing to disclose required information in their offerings, and also failing to obtain necessary shareholder approval to proceed to a public listing. How can investors protect themselves as emerging opportunities face the risk of collapse?
One way to gain more information is to carefully scrutinize the product or service’s terms and conditions. If you need to bring a dispute, is it subject to arbitration? If so, is that arbitration held within the United States, or elsewhere? As painful as it can be to think preemptively of what to do should the situation turn sour, gaming out the steps is an essential exercise for anyone seeking to invest sums of money.
Another step to take is to look at any existing regulatory paper trail the service has provided to the U.S. Securities and Exchange Commission or other regulators (depending on the industry.) Even though many SPACs, for example, have been criticized for missing filing deadlines or submitting incomplete disclosures, the filings they have submitted can be important. In the spring of 2022, the SEC proposed new disclosure rules for the SPAC and de-SPAC process, including disclosing conflicts of interest concerning the sponsor, and also requiring disclosure of the fairness opinion concerning the potential de-SPAC transaction.
The new rules are still not finalized and the agency was still accepting comments from the public earlier this month, but they highlight important risk management techniques as the new year awaits. Learning all that you can about a new investment opportunity – especially one in a still uncertain regulatory framework, as broader economic uncertainties loom, including likely recession – is critical to not losing an investment or waiting in line as a creditor in a bankruptcy court, hoping to be made whole again one day.