Wed 10/28/2020 15:56 PM
Share this article:
Relevant Documents:
Voluntary Petition
First Day Declaration
DIP Financing Motion
First Day Hearing Agenda

NS8 is a cyber fraud prevention company that develops and sells software to help online vendors assess the fraud risks of customer transactions
Faces fraud-based SEC lawsuit after obtaining $123 million in series A funding by this summer; co-founder and former CEO was arrested on Sept. 17 for securities fraud and wire fraud
Seeks to pursue a sale of its assets and prosecute various litigation, avoidance and asset recovery actions
Requests $10 million in DIP financing from Alter Domus (fka Cortland Market Services) as DIP agent and Invictus Special Situations Master I as lender


NS8, Inc., a Las Vegas-based a cyber fraud prevention company that develops and sells electronic tools to help online vendors assess the fraud risks of customer transactions, filed for chapter 11 protection on Tuesday, Oct. 27, in the Bankruptcy Court for the District of Delaware. After $123 million in series A funding turned out to be the result of “deception and fraud” on the part of NS8’s co-founder and former CEO, Adam Rogas, the debtor says its operations were “thrown into turmoil.” In the chapter 11 filing case, the debtor seeks to (i) continue a prepetition marketing process, through which “multiple parties have expressed interest in consummating a sale,” (ii) consummate a structured and orderly sale of the debtor and (iii) prosecute various litigation, avoidance and asset recovery actions to maximize the value of its estate on behalf of its stakeholders. The debtor says it intends to pursue litigation and asset recoveries against Rogas and other recipients of transfers of the debtor’s property to “generate significant recoveries for the victims of Rogas’ fraud and other stakeholders.” Continue reading for the First Day by Reorg team's case summary for the NS8 chapter 11 filing, and request a trial to access our coverage of thousands of other chapter 11 filings. 

The Securities and Exchange Commission filed a complaint against NS8 on Sept. 14, alleging that Rogas altered bank statements to show “tens of millions of dollars” in customer revenue and bank balances “that did not exist.” Rogas was arrested on Sept. 17 on one count of securities fraud, one count of fraud in the offer or sales of securities and one count of wire fraud.

The fallout of fraud allegations engendered a “looming liquidity crisis,” says FTI’s Daniel Wikel, the debtor’s CRO, and the debtor consequently determined that it could not continue operating as a going concern in the ordinary course. In connection with “aggressive efforts” to preserve liquidity, the debtor has reduced its employee count to six and has vacated all of its various office locations as of the petition date. The debtor says that “a Sale of the Debtor’s assets, development of its litigation and asset recovery plan, and simultaneous expeditious investigation and prosecution of claims against Rogas and others would deliver maximum recoveries to NS8’s stakeholder.” In support of these efforts, NS8 has secured $10 million of DIP financing in the form of tranche A term loans in the amount of $8 million and tranche B term loans in the amount of $2 million, with Alter Domus (formerly known as Cortland Market Services) as DIP agent and Invictus Special Situations Master I as DIP lender.

Wikel writes that DIP financing on a final basis would “provide a mechanism for the satisfaction of all general allowed unsecured claims in full” while noting that “numerous parties likely possess unliquidated claims against the Debtor arising from the various misrepresentations made by Rogas relating to the extent and nature of the Debtor’s prepetition operations.”

The debtor faces a class action adversary complaint filed on the petition date, which seeks recovery on behalf of NS8 employees of damages in the amount of 60 days’ pay and ERISA benefits under the WARN Act. A “mass layoff and/or plant closing” ordered by the debtor, violated the WARN Act, the complaint asserts, by failing to give the employees at least 60 days’ advance written notice of termination.

The first day hearing has been scheduled for Thursday, Oct. 29, at 9 a.m. ET.

The company reports $10 million to $50 million in assets and $100 million to $500 million in liabilities, and its prepetition capital structure includes:

  • Secured debt: None (except for potential claims of equipment lessors and/or taxing authorities)

  • Unsecured debt: $600,000 (including claims held by investors)

  • Equity: Holders of at least 10% of the debtor’s equity consist of: Adam Rogas, NS8 FP LLC, David William Hanna Trust 10‐30‐89, Eric Kay, Lightspeed Venture Partners Select IV, LP, Lightspeed Venture Partners Select III, LP, Edison Partners IX LP, Matignon Alternatif SAS, AVP Capital A FPCI, SCP NS8 Investment, LLC, Lytical Ventures CI, LP, TDF, M37 Carried Interest, LLC, Fedora Blanco, LLC, Blu Venture Investors, LLC, Bloomberg Beta 2016 LP and NextGen NS8 LLC. A full list of equityholders is HERE.

NS8 conducted at least four securities offerings prior to the petition date. Throughout 2016 and 2017, the company raised approximately $9 million in seed round funding from investors, and in early 2019, NS8 raised approximately $11 million from investors through the sale of convertible notes. In late 2019 and the first half of 2020, the company raised more than approximately $123 million of series A funding from investors through the sale of preferred stock.

Of the series A funding, approximately $72 million was utilized to capitalize a tender offer in which early stage investors were provided the opportunity to redeem their equity interests in the debtor. Rogas received $17.5 million in proceeds from that tender offer, personally and through a company he controlled. The remaining funds were purportedly set aside for working capital purposes. “Unfortunately,” Wikel writes, it appears that the series A round was obtained by Rogas through “deception and fraud.” Wikel adds that it “is now clear that throughout NS8’s history, Rogas had intentionally and grossly overstated its revenue, gross margin, and the extent and profitability of NS8’s operations to current and prospective investors, the other members of the senior management team, the board of directors, and corporate partners.”

In August 2020, the debtor’s newly-appointed president and controller embarked on a process to rationalize and improve NS8’s internal controls and financial reporting mechanisms. Despite outwardly welcoming the endeavor, Rogas delayed the effort to complete reporting for July 2020 and cede his customary control over the debtor’s bank accounts, the debtor states. “Ultimately, the reasoning behind Rogas’s reticence became apparent – while Rogas had represented to NS8’s finance team that the company possessed over $60 million in cash on hand, in fact, NS8 was on the precipice of a severe liquidity crisis.” Rather than attempt to explain the discrepancy, Rogas abruptly resigned from NS8 on Sept. 1, and NS8’s operations were “thrown into turmoil.”

The debtor is represented by Cooley and Blank Rome as co-counsel and FTI Consulting as financial advisor, with FTI’s Dan Wikel serving as the debtor’s CRO. Stretto is the claims agent. The case has been assigned to Judge John T. Dorsey (case number 20-12702).


The debtor’s services include: (i) safeguarding online businesses against advertising fraud, transaction fraud and poor site performance; (ii) protecting against threats; and (iii) offering customer insight through the use of behavioral analytics, real-time user scoring and global monitoring. As of May 30, 2020, NS8 had grown to employ approximately 215 employees at office locations in Las Vegas, San Francisco, San Ramon, Miami, Amsterdam, Singapore and Melbourne.

Available through easy-to-install plugins on multiple platforms, the debtor says that NS8 empowers merchants to quickly minimize risk, better automate fraud management and realize savings throughout the customer lifecycle. NS8 was co-founded in 2016 by Adam Rogas and five others with the guidance and assistance of Mach37, a Tysons, Va.-based start-up accelerator designed to facilitate the creation of the next generation of cyber product companies, according to the debtor.

At the outset, NS8 operated like many other prototypical technology start-ups, relying on the sweat equity of its co-founders and the seed investment of friends, family and a few angel investors. From its creation until Sept. 1, 2020, Rogas served as the debtor’s CEO, CFO and board member. In these capacities, Rogas was primarily responsible for the company’s financial reporting and fundraising activities, the debtor says.

NS8 has two wholly owned, non-operating foreign affiliates organized under the laws of the Netherlands: NS8 Holdings B.V. and NS8 B.V.

The debtor’s largest unsecured creditors are listed below:

10 Largest Unsecured Creditors
Creditor Location Claim Type Amount
Hansen Networks Las Vegas Trade $    298,976
Engineer Better Ashford, United Kingdom Trade 36,322
Paloalto Networks Santa Clara, Calif. Trade 29,988
LGC 231, LLC Las Vegas Landlord 27,395
Fit for Commerce Short Hills, N.J Trade 22,500
Fivetran Inc Oakland, Calif. Trade 20,400
System3 B.V Amsterdam, Netherlands Trade 17,680
Jamf Software Minneapolis Trade 13,932
Crosby MarketWize Belmont, Calif. Professional/
Oracle of America, Inc Redwood Shores, Calif. Trade 12,275

The case representatives are as follows:

Role Name Firm Location

Debtor's Co-Counsel

Victoria A. Guilfoyle

Blank Rome

Wilmington, Del.
Stanley B. Tarr
Josef W. Mintz
Bryan J. Hall
John E. Lucian Philadelphia

Debtor's Co-Counsel
Michael Klein Cooley  
New York
Jared Kasner
Cullen D. Speckhart  
Joseph Brown
Debtor's Financial
Daniel P. Wikel (CRO) FTI Consulting New York
Lee Swiegert
Co-Counsel to the DIP
Secured Parties
Robert J. Dehney Morris, Nichols,
Arsht & Tunnell
Wilmington, Del.
Andrew Remming
Co-Counsel to the DIP
Secured Parties
Adam Harris Schulte Roth
& Zabel
New York
Counsel to Edison
Partners IX, as
Stuart M. Brown DLA Piper Wilmington, Del.
Aaron S. Applebaum
Thomas R. Califano New York
Co-Counsel to the
WARN Act Plaintiffs
Christopher D. Loizides Loizides Wilmington, Del.
Co-Counsel to the
WARN Act Plaintiffs
René S. Roupinian Raisner
New York
Jack A. Raisner
Co-Counsel to the
WARN Act Plaintiffs
Stuart J. Miller Lankenau
& Miller
New York
Co-Counsel to the
WARN Act Plaintiffs
Mary E. Olsen The Gardener
Mobile, Ala.
M. Vance McCrary
United States
Securities and
Exchange Commission
Therese Scheuer U.S. Securities
and Exchange
United States
Department of
Richard Cooper United States
Department of
Jared Lenow
United States Trustee Benjamin A. Hackman Office of the
U.S. Trustee
Wilmington, Del.
Timothy Jay Fox
Debtor's Claims Agent Sheryl Betance Stretto Irvine, Calif.

DIP Financing Motion

The debtor requests approval of a senior secured superpriority multi-draw term loan $10 million DIP facility ($4 million on an interim basis) with Alter Domus (US), LLC as agent and Invictus Special Situations Master I, L.P. as lender, that they say “should provide it with sufficient runway to navigate through the chapter 11 process.” The DIP financing consists of two tranches - $8 million of tranche A term loans and $2 million of tranche B term loans.

The DIP financing bears interest at 15% for the tranche A term loans, or PIK interest at 20% at the option of the borrower, with 2% for the default rate. The tranche B term loans bear interest “on the principal amount thereof from time to time outstanding in an amount equal to two times the outstanding principal amount of such Tranche B Term Loans.” The DIP financing matures on the earliest of 18 months after the petition date, the first business day after the date on which the amount on deposit in the “Recovery and Collateral Account” (an account into which the debtor would deposit 100% of the net proceeds received on account of any collateral, including any “Recovery Claims”) is at least $1 million, conversion of the case to chapter 7, acceleration of the DIP loan, substantial consummation of a plan of reorganization, or 35 days after the interim order if the final order has yet to be entered.

The facility includes various fees, including a $750,000 put option premium and an early termination premium in an amount equal to the interest that would have been paid on such tranche A term loans had the loans remained outstanding through maturity.

In support of the proposed DIP financing, the debtor filed the declaration of FTI’s Daniel Wikel, the debtor’s CRO, who states that the debtor received three third party DIP proposals as well as a proposal from a group of investors for a subordinated DIP facility, but that only the proposed DIP lender “provided a term sheet or expressed an interest in providing such financing under the circumstances, at the necessary borrowing limit, and in the timeframe required by the Debtor given its liquidity issues.” The debtor proposes a lien on proceeds on insider avoidance actions on an interim basis and non-insider avoidance actions on a final basis. Wikel stresses that “unlike most debtors-in-possession, and due to the alleged fraudulent conduct that is outlined in the Wikel Declaration filed contemporaneously herewith, the Debtor’s most valuable assets do not consist of inventory, accounts receivable, intellectual property or other assets associated with the operation of their business, but instead, are comprised of unliquidated litigation claims against Rogas and other third parties (including claims arising under Chapter 5 of the Bankruptcy Code).”

Wikel says that with the liquidity to be gained through the DIP facility, the debtor “will be able to achieve sufficient litigation recoveries to satisfy all DIP-related obligations and provide a meaningful return to the Debtor’s other stakeholders.”

Subject to the final order, the debtor proposes a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c).

The proposed budget for the use of the DIP facility is HERE.

The DIP financing is subject to the following milestones:

  • Interim DIP order: Entered within three business days of petition date

  • Bid procedures motion: Filed within five days of the petition date

  • Bid procedures order: Entered within 28 days of the petition date

  • Final DIP order: Entered within 35 days of entry of the interim order

  • Auction and sale hearing: Within 45 days of petition date

  • Sale order: Entered within 50 days of petition date

  • Sale closing: Within 60 days of petition date

Other Motions

The debtor also filed various standard first day motions, including the following:
Share this article:
This article is an example of the content you may receive if you subscribe to a product of Reorg Research, Inc. or one of its affiliates (collectively, “Reorg”). The information contained herein should not be construed as legal, investment, accounting or other professional services advice on any subject. Reorg, its affiliates, officers, directors, partners and employees expressly disclaim all liability in respect to actions taken or not taken based on any or all the contents of this publication. Copyright © 2020 Reorg Research, Inc. All rights reserved.
Thank you for signing up
for Reorg on the Record!