In what could become a hot new market, whistleblowers are starting to cash in early on their rewards from the IRS–and investors are eating it up. Ever since the rules governing IRS rewards for tax fraud informants changed in 2006 to provide for bigger whistleblower awards, there has been a huge surge in tips provided to the agency. Investors, including hedge funds and private equity groups, have realized that there is some big money at stake here, and they are willing to front whistleblowers a portion of their reward in return for a large percentage of the final IRS payout–sometimes as much as 65%. If hedge fund managers are paying this much attention to an investment, you can bet that there is some serious money to be made. These are the guys, after all, whose top 25 earners made a collective $25.3 billion in 2009.
In the first advance payment made to an IRS whistleblower so far, a private equity firm paid $4 million to informant Eric R. Havian. Havian’s attorney noted that the whistleblower needed the money to pay for living expenses because, as is the case with many other whistleblowers, he had trouble finding a job after reporting a multinational corporation that allegedly underpaid its taxes by billions of dollars. A common thread in the whistleblower experience is the high probability of being rejected by the industry in which the whistleblower used to work. Whistleblowers face a growing financial burden while they wait around, unemployed, for the IRS to pay out an award. It seems that by making advance payments available to whistleblowers, hedge funds and other investors could actually promote more whistleblowers to come forward with tips.
In what is perhaps the ultimate irony in all of this, mega-bank Credit Suisse has explored the possibility of investing in whistleblower claims. Credit Suisse has been targeted by the U.S. and other countries for allowing people to hide their assets in secret accounts with the bank. There must be a lot of potential in whistleblower reward investments if a bank is exploring the possibility of potentially betting against its own interests!
This article is brought to you by The Qui Tam Team, the epicenter for whistleblowers and people interested in the False Claims Act, Qui Tam Provisions, and Medicare and Medicaid fraud. To discuss a potential case, please call Eric Young at 1 (800) 590-4116.