Hedge Fund Linked to Defrauded Anti-Cyber-Fraud Bankruptcy Raises Concerns Over Shared Characteristics

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Three years ago, Invictus Global Management, a newly established hedge fund, extended support to the cyber-fraud detection operation NS8. Struggling with its own internal issues, NS8, despite its mission to assist other companies in identifying fraud, failed to detect fraudulent activities within its own ranks. Notably, the founder and CEO were fabricating revenue to attract investors, diverting funds to partially cash out personal shares, totaling $17.5 million. Consequently, the CEO is now serving a five-year prison sentence.

The rescue attempt for NS8 proved futile, as a fraud-detection specialist unable to recognize a significant fraud within itself appeared to lack valuable assets. However, there was a glimmer of hope in the form of legal claims seeking to recover some of the ill-gotten gains, including payouts to individuals like Adam Rogas. NS8’s fraudulent practices had involved selling shares to individuals who had invested over $40 million based on nonexistent revenue. Invictus pledged $10 million towards these legal efforts.

Beyond the financial rescue mission, it seems that Invictus might have identified unsettling parallels between its own conduct and that of NS8. Two major clients raised concerns about Invictus, shedding light on the hedge fund’s questionable practices. In 2020, a Texas bankruptcy court sanctioned Invictus for disseminating “false or misleading information” during its attempt to acquire the bankrupt retailer Tuesday Morning. Additionally, Jefferies Financial Group filed a lawsuit against Invictus after the hedge fund reneged on a deal to purchase $5 million in bankruptcy claims, citing a decrease in market value.

Corbin Capital Partners and Gatewood Capital Partners severed ties with Invictus, citing the hedge fund’s failing investment strategy and conduct inconsistent with fiduciary responsibilities. Gatewood accused Invictus of an “utter disregard of its fiduciary obligations.” Corbin had been critical of Invictus’s performance since 2019, describing it as an “unskilled investor” responsible for significant losses.

In response to the termination, Invictus’s $100 million flagship was handed over to Treo Asset Management, including funds belonging to Invictus’s team. Invictus plans to file a lawsuit against Gatewood, accusing it of “exploitative tactics” and misleading the fund about its fundraising capabilities.

A spokesperson for Invictus defended the hedge fund’s actions, claiming that it stood up to Gatewood for its failures, leading to collusion with Corbin Capital Management to remove Invictus as the fund manager. The spokesperson expressed regret that litigation became necessary to protect Invictus from what they deemed as predatory actions by seed investors like Gatewood and Corbin.

As Invictus’s managers strategize to recover their share of the fund’s capital and move forward, the narrative unfolds as a tale of financial entanglements, legal battles, and the complex dynamics within the world of hedge funds.