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.
The full story is here. And what about the price?
While the market in whistle-blower futures is in its infancy, investors have been requesting as much as 65 percent of any award an informant receives, according to lawyers negotiating possible deals. In the more established field of litigation finance, investors who underwrite the cost of a lawsuit get 5 percent to 50 percent of any legal settlement or jury award.