Whistle-Blowers Become Investment Option for Hedge Funds

The New York Times reports:

Hedge funds have found a new market to invest in: whistle-blowers.

Informants who turn in tax cheats have to wait years to get their share of any reward from the I.R.S.’s recently expanded whistle-blower program. So hedge funds, private equity groups and other big investors are offering an alternative. They are essentially agreeing to buy a percentage of those future payouts in exchange for a smaller amount upfront to the whistle-blowers.

The surging size of the potential awards is driving all the interest. Three years ago, the I.R.S. began offering bigger rewards — 15 percent to 30 percent of whatever money the government recovered — in a move that has turbocharged the agency’s whistle-blower program.

Where it once handled only a trickle of tips, often involving relatively small amounts of unpaid taxes, I.R.S. offices now receive a torrent of big money claims. Accountants and company employees have taken to trooping in bearing computer records and boxes of documents to back up their claims of underpayment by big companies.

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