I certainly don’t mean to overstate the benevolence of hedge funds; but unless this one is actively irrational, in addition to being lawful evil, it is hard to take their lawsuit as a good sign for Theranos or the honesty of its people during the applicable funding round.
According to the article on Ars, this particular fund has never previously litigated in this way during their 12 years of operation; so if it is a strategy it’s a new one.
More importantly, if they put 100 million in comparatively early, they presumably have a decent stake in the company. Filing suit is obviously not going to improve confidence in Theranos, and clearly endangers whatever value that stake in the company might have. Again, assuming rational decision making, a lawsuit only makes sense if they both suspect that the company is doomed enough that whatever part of it they own is worthless or seriously under water even if they keep their mouths shut or make optimistic statements about how everything is still OK(as a number of other investors have been doing); and they have some evidence of fraud/deception/etc. compelling enough to give them a shot at getting their money back; rather than merely being stuck in the line of creditors receiving pennies on the dollar when the company is sold for scrap.
Obviously, they’d love to play ‘heads I win, tails you lose’ every time; but the circumstances of this case just don’t reward a lawsuit unless fairly specific conditions are met: if the company isn’t crashing and burning, their best bet is to just shut up and offload their purchase on the next Greater Fool who wanders by; and even if the company is crashing and burning; they need some fairly juicy proof of fraud to have a chance at getting enough money back to even cover the legal expenses, since Theranos’ operating costs have presumably consumed much of the cash and there are other investors who would also like their money back if possible.
If they have nothing aside from ‘we made a risky investment’, they are just accruing legal fees and hastening the demise of the company they invested in; without any particular advantage over all the other creditors who want a scrap of whatever is left. Unless they are just idiots; they must believe that they were defrauded to a greater degree than at least some of the other investors for this strategy to make any sense.
I have no way of knowing whether they are correct in that belief or not; but without it their behavior is irrationally self destructive.