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Debt-ridden NSO Group may shut down controversial Pegasus spyware unit amidst growing list of challenges

Investigations, lawsuits, and government restrictions have forced the company to look for prospective buyers.

NSO Group is in danger of defaulting on its debts and is exploring shutting down its controversial Pegasus spyware unit or selling the entire company, Bloomberg reported on December 13. The company is in talks with several investment funds regarding the same, the report said citing unnamed sources.

“A loan with a face value of over $300 million that NSO issued in 2019 was trading in November at an all-time low bid of 70 cents on the dollar. It was quoted Monday at a bid of 50 cents on the dollar, according to people familiar with the prices.” – Bloomberg

Why this matters: If NSO Groups shuts down or winds down its Pegasus operation, it will be a huge win for privacy advocates around the world as the company has become infamous for making sophisticated surveillance tech. However, the shutting down of NSO might also scuttle investigations into the misuse of Pegasus by various nation-states and legal battles launched against the company by Apple and WhatsApp.

NSO Group was thrown into the spotlight in July when a consortium of media publications part of the Pegasus Project revealed that multiple governments across the world, including India, used Pegasus to target political leaders, journalists, human rights activists, businessmen, military officials, intelligence agency officials, and several others. This was in stark contradiction to what the company has always maintained: that it only sells Pegasus, which allows full remote surveillance of the targets’ phones, to governments to prevent crime and terrorism.

Read: Pegasus Spyware: All The Latest Facts On Who Was Targeted, The Modus Operandi, And More

NSO Group, as well as investment firm Moelis and Co and law firm Willkie Farr & Gallagher, both of which are said to be providing consultation on this matter, declined to comment to Bloomberg. 

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Challenges faced by NSO Group

NSO Group’s financial troubles are intertwined with many of the other challenges that the company faces, all of which make it all the more likely that the company might have to shut down. Here are a few of these challenges:

  • Israel’s new cyber tech export restrictions: Earlier in December, Israel’s Defence Ministry issued new guidelines that require countries interested in buying cyber technologies from Israel to commit to only using them to prevent a limited list of terrorism acts and serious crimes. These new guidelines place severe restrictions on entities wanting to import such tech from the country and consequentially hurt NSO’s business.
  • Addition to US blacklist: On November 3, NSO and Candiru were added by the US government to its Entity List “based on evidence that these entities developed and supplied spyware to foreign governments that used these tools to maliciously target government officials, journalists, business people, activists, academics, and embassy workers,” a press release by the US Department of Commerce said. This places severe restrictions on American companies from being able to sell their products or services to NSO. These restrictions put added pressure on NSO, which needs to pay back about $450 million in debt, Bloomberg said.
  • Lawsuits against the company by Apple and WhatsApp: Both Apple and WhatsApp have filed lawsuits against NSO Group and its parent company. In its lawsuit, Apple sought a permanent injunction to ban NSO Group from using any Apple software, services, or devices, which if granted could significantly hurt NSO’s ability to develop new surveillance tech.
  • Investigations by various countries:
    • India: The Pegasus Project revealed that the targets allegedly picked by the government didn’t indicate national security concerns, but rather surveillance of those who are critical of the government. In light of this, multiple people filed petitions before the Supreme Court, and the Court in October constituted an expert committee to investigate the usage of Pegasus by the government against its own citizens.
    • Israel: Following the Pegasus Project revelations in July, the Israeli government constituted an inter-ministerial team to investigate NSO Group. Several Israeli government officials visited the office of the NSO Group in the same month, according to a statement from Israel’s Ministry of Defense. The Ministry reportedly said that it would review the allegations of misuse of the NSO’s surveillance software while hinting at a possible “review of the whole matter of giving licences”.
    • France: After the Pegasus Project revealed that the French president Emmanuel Macron was targeted for surveillance by a Moroccan security service, the French government immediately launched an investigation into the matter, which is currently ongoing.
    • Hungary: Hungarian prosecutors in July announced that they would open an investigation to determine whether a crime took place using Pegasus. Hungary was the only EU country in the list of potential Pegasus users revealed as part of the Pegasus Project. As many as 300 Hungarian nationals were identified as potential targets by the project.
  • UK High Court Ruling: In October, a UK High Court ruled that Dubai ruler Sheikh Mohammed bin Rashid al-Maktoum’s agents hacked the phone of his ex-wife Princess Haya using Pegasus in an unlawful abuse of power and trust. The ruling added fodder to the misuse allegations reported by the Pegasus Project in July.

Who are the prospective buyers?

According to Bloomberg, the prospective new owners include two American funds that have discussed taking control and closing Pegasus.

It is not sure how this would play out considering that NSO Group is part of the US Entity List. Perhaps, the shutting of the Pegasus unit might convince US authorities to let this deal go through.  “Under that scenario, the funds would then inject about $200 million in fresh capital to turn the know-how behind Pegasus into strictly defensive cyber security services,” Bloomberg said.

However, the shut down of Pegasus could leave NSO as a much smaller and less valuable company because Pegasus accounts for about half of NSO’s revenues, the report added.

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