SEC and DOJ Back Class-Action Suit Against Nvidia Over Crypto Revenue Allegations

Highlights:

• The SEC and DOJ back a class-action suit against Nvidia for hiding over $1 billion in crypto mining revenue.
• U.S. agencies argue that the case contains enough evidence to proceed, citing former Nvidia employee accounts and internal data.
• Nvidia is accused of downplaying its reliance on crypto mining, allegedly inflating its 2017-2018 revenue.

The U.S. Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) have thrown their support behind a class-action lawsuit against Nvidia. The case, which accuses Nvidia of misleading investors about the role cryptocurrency mining played in its revenue during 2017 and 2018, has reached the U.S. Supreme Court.

The two agencies filed an amicus brief arguing that the lawsuit contained sufficient details to proceed and requested the Supreme Court to affirm its revival by an appeals court. The class-action suit, originally filed in 2018, claims that Nvidia concealed over $1 billion in GPU sales to cryptocurrency miners.

According to the investors, Nvidia downplayed the significance of crypto-related demand and attributed the company’s revenue surge to gaming, even though cryptocurrency mining drove much of the sales. The lawsuit alleges that this became evident when Nvidia’s sales dropped sharply after the 2018 cryptocurrency crash.

The US DOJ and SEC told the Supreme Court that the Nvidia investor class action lawsuit should be approved. The investor group tried to sue Nvidia in 2018, accusing it of concealing more than $1 billion in GPU sales to crypto miners. https://t.co/AqM1tbjmhA

— Wu Blockchain (@WuBlockchain) October 4, 2024

Legal Battle Revived by Ninth Circuit

Although the case was initially dismissed by a lower court due to a lack of evidence, the Ninth Circuit Court of Appeals revived it in 2023. Nvidia then petitioned the Supreme Court to dismiss the lawsuit. In its defense, Nvidia argued that the investors’ case relied on fabricated data from an expert opinion.

However, the SEC and DOJ strongly refuted this claim, stating that the lawsuit is based on credible evidence, including internal Nvidia documents, reports, and accounts from former employees. The authorities pointed to key evidence provided by former Nvidia employees. One insider testified that Nvidia maintained a global database to track sales of its GeForce GPUs to crypto miners.

Another claim states that CEO Jensen Huang participated in meetings where they discussed the impact of crypto mining on Nvidia’s revenues. These accounts, combined with a significant decline in sales following the cryptocurrency market crash, suggest that Nvidia’s leadership was well aware of the influence of crypto miners on their revenue.

Significance for Federal Securities Laws

The DOJ and SEC also emphasized that private enforcement actions, such as this class-action suit, are vital for maintaining the integrity of U.S. capital markets. They argued that Nvidia’s position, which challenges the use of expert opinions and internal company data at the pleading stage, sets a dangerous precedent that could limit plaintiffs’ ability to bring legitimate claims. The agencies underscored that corporate transparency is crucial, especially when companies operate in volatile sectors like cryptocurrency.

Furthermore, 12 former SEC officials filed an additional brief supporting the investors. They argue that private enforcement of federal securities laws is essential for holding companies accountable. They contended that Nvidia’s argument would impose unreasonable requirements on plaintiffs. Consequently, this forces them to obtain internal documents before discovery and barring the use of expert opinions too early in the litigation process.

Impact on Nvidia and Crypto Regulation

Nvidia faces legal challenges as its GPUs were widely used for cryptocurrency mining during the boom years of 2017 and 2018. The class-action suit claims that Nvidia did not disclose how much it relied on this volatile market. The significant drop in revenue after the 2018 cryptocurrency crash allegedly exposed how much of Nvidia’s revenue depended on crypto mining.

If the Supreme Court allows the lawsuit to proceed, it could set an important precedent for companies disclosing their exposure to volatile markets such as cryptocurrency. A decision favoring the investors may result in penalties for Nvidia and increased scrutiny on corporate disclosures in industries with fluctuating demand. Moreover, it could shape how other tech companies approach their financial reporting, particularly in emerging markets like cryptocurrency.