Nvidia is facing a class-action lawsuit that alleges the company misled investors regarding its sales to cryptocurrency miners, following a decision by the United States Supreme Court to reject the company’s appeal in the case. The Supreme Court’s dismissal of the appeal on December 11 reinstated a ruling from an appellate court, which had previously revived the lawsuit that a group of Nvidia shareholders had filed in 2018. The shareholders contend that Nvidia concealed over $1 billion in revenue generated from GPU sales to crypto miners, with CEO Jensen Huang allegedly minimizing the significance of these transactions. Nvidia expressed disappointment over the Supreme Court’s decision, indicating their preference for a ruling that would confirm the lower court’s dismissal of the lawsuit. Nevertheless, the company affirmed its readiness to continue its defense against the claims.
The lawsuit originated after the shareholders noticed a drastic drop in Nvidia’s share price, which fell nearly 30% over two days in late 2018. This decline coincided with a significant collapse in the cryptocurrency market, leading the plaintiffs to argue that Nvidia’s financial stability was heavily reliant on the booming sales to crypto miners during that period. Nvidia, however, has countered that the claims are based on fabricated data regarding its business operations and profitability. The company believes it has a strong case to refute these allegations, maintaining that it operated transparently regarding its revenue streams.
In October, the case gained additional scrutiny and support when the Justice Department and the Securities and Exchange Commission (SEC) aligned with the shareholders. Their intervention suggested that Nvidia’s argument against the lawsuit was unfounded. The SEC highlighted that the investors have backing evidence, including testimony from previous Nvidia executives and a report from the Bank of Canada, which claims that Nvidia significantly understated its revenues related to cryptocurrency transactions by approximately $1.35 billion. This development marks a critical turning point in the lawsuit, as the involvement of federal agencies adds substantial weight to the shareholders’ claims.
The Supreme Court’s order came after it heard arguments regarding the case on November 13. During the deliberation, some justices raised questions about the rationale for the court’s involvement, contemplating whether the case presented a legal issue warranting a Supreme Court ruling. The absence of a more detailed explanation regarding the court’s decision further fueled speculation about the underlying reasons behind the dismissal. Nvidia’s opponents interpreted this as a favorable indication that there may be merit to the allegations against the company, further emboldening the plaintiffs in their pursuit of accountability from the chip maker.
Nvidia’s legal troubles are compounded by its prior settlement with the SEC in 2022, where the company agreed to pay $5.5 million to address allegations related to insufficient disclosures regarding the impact of cryptocurrency mining on its gaming business. Although Nvidia did not admit to any wrongdoing in this settlement, it illustrates the regulatory scrutiny the company has faced while navigating the complex relationship between cryptocurrency activities and its market operations. The ongoing class-action lawsuit is, therefore, symptomatic of broader concerns among investors about transparency, corporate governance, and compliance with securities regulations.
As the case progresses, the implications for Nvidia could be significant, not only in terms of potential financial penalties but also regarding its reputation in the investor community. Consistent and reliable standards in securities litigation are viewed as crucial for both protecting shareholders and fostering a robust economy, according to Nvidia. The company’s resolve to defend itself against these allegations will be tested as more evidence is presented in court, and as the lawsuit unfolds, it serves as a reminder of the complex dynamics accompanying the intersection of technology, finance, and regulatory oversight in the rapidly evolving world of cryptocurrency.