UPDATE 1-Israel's NSO Group says in talks with U.S. funds over possible deal

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(Adds details, background)

By Steven Scheer

JERUSALEM, Jan 26 (Reuters) - Israeli spyware firm NSO Group said on Wednesday it is in talks with a number of U.S. funds over "various financial moves", confirming media reports that it was discussing a sale of its assets.

The surveillance firm, which makes the Pegasus software, has been embroiled in controversy after revelations its tools had been used by governments and other agencies for spying on people’s cellphones. NSO has said its technology helps catch terrorists, paedophiles and hardened criminals.

Citing a letter of intent, the Haaretz daily reported that NSO was in talks to sell its assets to the U.S. venture capital firm Integrity Partners, which would inject $300 million into the company.

"The company generates great interest with a few U.S. based funds, and the company is in talks with them all," an NSO spokesperson told Reuters, declining to name Integrity.

NSO has changed hands frequently. Most recently, it was bought by UK-based private equity firm Novalpina Capital in 2019, with Berkeley Research Group (BRG) taking over management of Novalpina, and effectively of NSO, in July last year.

The company also appointed a new chairman at the start of this year.

Haaretz said a new business plan would be created after NSO lost many of its existing customers when the U.S. Commerce Department in November blacklisted the company. Dealing a blow to the firm's export prospects, the Commerce Department said NSO sold spyware to foreign governments which then used it to target government officials, journalists and others.

The newspaper said Integrity was working with the United States to have the company removed from the blacklist.

Apple is among those to have sued NSO, saying it violated U.S. laws by breaking into the software installed on iPhones.

Microsoft Corp, Facebook parent Meta Platforms Inc , Google parent Alphabet Inc and Cisco Systems Inc have also criticised NSO or taken legal action.

Last week Israel's attorney general ordered an investigation into police surveillance tactics after reports that Pegasus had been improperly used domestically.

(Reporting by Steven Scheer, Editing by Louise Heavens, Kirsten Donovan)