In the search for ever more obscure and potentially lucrative investment opportunities, hedge funds are turning to a new source: whistle-blowers. In the U.S., payouts that informants receive from the government in white-collar cases like corporate tax evasion can reach into the tens, even hundreds of millions of dollars.
But the funds can take years to be paid out, and only if claims are deemed worthy by the government. That’s where hedge funds are stepping in, buying a stake in potential future payouts by making a smaller upfront payment to whistle-blowers. The New York Times reports that one whistle-blower recently received US$4 million from a private equity firm that could one day collect many times that amount from the U.S. Internal Revenue Service. There’s an upside for the government in this new system, too: even more incentive for potential whistle-blowers to step forward.