(Bloomberg) -- A billionaire hedge fund manager agreed to pay $105 million to New York, the biggest fine of its kind in the state, after being accused of dodging tax liability in 2017 on hundreds of millions of dollars in deferred investment fees.Thomas Sandell and his activist firm, Sandell Asset Management Corp., failed to pay state and city taxes on $450 million in management and performance fees from a decade’s worth of work in New York City, New York Attorney General Letitia James said in a statement.A whistle-blower who exposed the allegations will get a $22 million cut of the settlement.In the accord, reached under New York’s False Claims Act, neither Sandell nor his company admitted or denied the allegations, according to the statement.“The greed that allowed one man to try to avoid paying his fair share of taxes is astonishing,” James said. “Thomas Sandell and his company bilked New York taxpayers out of tens of millions of dollars in a single year -- placing a tremendous burden on our system and forcing ordinary New Yorkers to bear that cost.”Through his lawyer, Christopher Doyle, Sandell and the firm declined to comment on the settlement.The probe sends a message to hedge fund managers that any move to Florida will be scrutinized to ensure it’s not a tax-dodging ruse. The Sunshine State, which has no individual income, estate or capital gains taxes, has been trying to lure investment firms from the Northeast for years, a trend that got a boost from the pandemic. In the biggest move so far, Paul Singer’s Elliott Management Corp is relocating from Manhattan to West Palm Beach.Whistle-Blower SuitThe investigation into Sandell was triggered by a 2018 lawsuit filed by a whistle-blower, according to the statement. The probe found that Sandell performed the investment services at issue exclusively in New York and that his deferred fees were taxable in New York state and New York City, the attorney general said.The whistle-blower’s lawyer, Randall Fox of Kirby McInerney LLP, said his client had presented “timely, compelling information about Sandell’s knowing tax violations” the became the foundation of the case. The total amount of taxes that were allegedly dodged was more than $50 million, he said.The settlement “shows that whistle-blowers can effectively help catch tax cheats so that the burdens of funding the government don’t just fall on people who follow the rules,” Fox said in a statement.Sandell, who founded Sandell Asset Management in 1998, took several steps to dodge the 2017 tax, including relocating to London from 2016 to 2019 and using an international accounting firm to make it look as though his operations were no longer in New York, according to the attorney general. He opened a shell office with three employees in Boca Raton, Florida, and held it out as the company’s only U.S. operation, funneling his payroll and property expenses through a third party he owned to keep up the false appearance, James said.Read More: Hedge-Fund Founder Accused of Leasing Rat-Filled N.Y. TownhouseThe deferred fees in the case were accrued between 1998 and 2008 from Sandell’s offshore hedge funds through work conducted in New York, according to a copy of the settlement unsealed in state court in Manhattan on Tuesday.The dispute was rooted in a 2008 change to rules on recognition of deferred fee income. As a result of the change, Sandell was required to recognize about $450 million in deferred fee income for 2017 and pay the appropriate New York taxes.Sandell used a tax strategy “available only to wealthy hedge fund managers with off-shore investments” to push off the taxes until 2017, Fox said.In 2019, Sandell’s firm returned cash to outside investors as it converted into a family office, people with knowledge of the matter said at the time. It had about $500 million of assets under management as of June 2019, one of the people said.(Updates with detail on the whistleblower.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.