Hedge funds, private equity firms invest in whistleblower rewards

Alternative investment providers are always looking for non-correlated alpha, and the industry may have stumbled on an interesting new asset class: reward proceeds due to whistleblowers. There are many whistleblower statutes, not all of which have fared well.

The Sarbanes Oxley (Sarbanes-Oxley news) whistleblower provisions, for reasons often discussed on this site, has not produced a gusher of activity. But the IRS program has been a huge success, if you measure it by the type of information that is being generated. That reflects a move three years ago, the IRS began offering bigger rewards--15 percent to 30 percent of whatever money the government recovered.

But structured payout are slowly paid, and sometimes the whistleblower needs money right away. Enter hedge funds (hedge fund news) and private equity (private equity news) funds, who would like in on the structured payout. To do so, they will offer the whistleblower some upfront money in exchange for a large chunk of future proceeds. According to the New York Times, the first ever such deal occurred last month. A private equity firm paid a man $4 million initially. A lot could go wrong for the fund. The award might change, or be challenged in court. But with any investment, there's always risk. 

 For more:
- here's the New York Times article

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