SEC, DOJ Urge Supreme Court to Greenlight Nvidia Crypto Investor Lawsuit
The DOJ and SEC's backing strengthens the investors' case. | Credit: Noah Berger, Getty Images
- Nvidia investors have filed a lawsuit alleging that the company misled the market about its reliance on revenue from cryptocurrency mining.
- Nvidia claims the complaint is based on unreliable data.
- The DOJ and SEC’s backing strengthens the investors’ case.
The U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have urged the U.S. Supreme Court to allow Nvidia investors to proceed with their lawsuit.
The lawsuit alleges that the company misled the market about its reliance on revenue from cryptocurrency mining.
DOJ and SEC Back Nvidia Investors
The DOJ and SEC’s backing strengthens the investors’ case. Both agencies argue that Nvidia’s conduct may have involved securities fraud, making the case worthy of continued litigation.
The investors’ lawsuit claims Nvidia, particularly CEO Jensen Huang, downplayed the company’s dependence on crypto-related sales, leading to inflated stock prices before the crypto market downturn in 2018:
“Plaintiffs alleged that NVIDIA, a producer of graphics processing units, knowingly or recklessly made materially misleading and false statements regarding the impact of cryptocurrency sales on NVIDIA’s financial performance in order to conceal the extent to which NVIDIA’s revenue growth depended on the notoriously volatile demand for cryptocurrency.”
Ninth Circuit Decision
The Ninth Circuit previously revived the class action, ruling that the investors sufficiently demonstrated that Huang’s statements could have been materially false and misleading, potentially meeting the legal standard of “scienter” (intent or knowledge of wrongdoing).
Nvidia, however, is contesting the Ninth Circuit’s decision , arguing that the investors relied on a questionable expert report and that the lawsuit misinterprets key provisions of the Private Securities Litigation Reform Act (PSLRA).
The company claims the complaint is based on unreliable data and fails to meet the stringent requirements Congress intended to prevent frivolous securities litigation.
Renewed Support for Private Investor Protections
The SEC and DOJ counter Nvidia’s claims, stating that the allegations were substantiated through multiple credible sources, including former Nvidia employees and external reports like one from the Royal Bank of Canada. They argue that the complaint isn’t solely dependent on an expert report, but draws from various corroborative sources.
The government emphasized its interest in private investor lawsuits, which support its own enforcement actions, and urged the Supreme Court to uphold the Ninth Circuit’s ruling.
The Supreme Court is scheduled to hear the case on Nov. 13, 2024. The outcome could have significant implications for how securities fraud cases are litigated, particularly concerning the standards required under the PSLRA for investor complaints.
Nvidia is also currently facing an antitrust investigation from U.S. regulators for the alleged $700 million acquisition of an Israeli AI startup.
In a recent interview, Huang reflected that most startup founders have no idea what they’re getting into. Huang said that:
“[…] building Nvidia turned out to have been a million times harder than I expected it to be, any of us expected it to be. At that time, if we realized the pain and suffering, just how vulnerable you’re going to feel, and the challenges that you’re going to endure, the embarrassment and the shame, and the list of all the things that go wrong, I don’t think anybody would start a company. Nobody in their right mind would do it.”
AI Without Nvidia: ByteDance Seeks Alternatives Amid US Chip Sanctions
Meta Shows off AI Infrastructure but Nvidia GPU Delay Threatens Progress