Newest Investment: Whistleblowers?

An article in the New York Times says that hedge funds, private equity groups and other organizations are capitalizing on an increase in corporate whistleblowing by investing in the potentially extremely lucrative rewards that come with revealing bad behavior, particularly tax evasion.

As compensation for informing the IRS of wrongdoing can potentially run into the hundreds of millions of dollars (whistleblowers get 30 percent of whatever the government manages to collect once they’re informed), some are viewing these rewards as smart investments. This is because while the amount of money a whistleblower may get through their actions can be vast, it can often take years to get it. What the investors will do is agree to pay out part of the reward they would have gotten right away in exchange for a cut of whatever money they do get later on. And it’s a big cut – sometimes up to 65 percent. This is because it’s viewed as an extremely risky investment, as there are strict privacy controls around whistleblowers that prevent investors from being able to fully gauge the risk levels of individual cases. There is always the chance that the whistleblower could get nothing.