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For years, and indeed as recently as earlier this year, venture capital firms threw money hand over first at a company called NS8. This made a certain amount of sense, insofar as NS8 was a promising player in the ever-growing field of cyber-fraud prevention. But, in one of those delightful turns of events, what they were apparently financing was a fraud in and of itself, as their decision to buy $17.5 million worth of shares from founder Adam Rogas was based on allegedly bogus financials provided to them by Rogas.

Does it end there? Reader, it does not, for the situation has created a new opportunity for one hedge fund.

Investment firm Invictus Global Management LLC has extended a loan to finance the planned litigation, aimed at recovering lost funds for victims of the alleged fraud that brought down NS8…. The chapter 11 case creates an avenue for NS8 to seek the return of funds it paid out when it appeared financially healthy but actually wasn’t. The bulk of potential value left in NS8 comes from these legal claims, according to a person familiar with its finances.

Fraud-Detection Startup NS8 Files for Bankruptcy, Paving Way for Litigation [WSJ]

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