Nvidia’s Crypto Mining Ties: SEC and DOJ Take On Tech Giant in Major Lawsuit

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Key Takeaways

  • The SEC and DOJ support a class action lawsuit against Nvidia.
  • Regulators allege the company downplayed the role of crypto mining in its 2017-2018 revenue to mislead investors.
  • Internal documents suggest CEO Jensen Huang was directly involved in discussions about its impact on sales.

The SEC and DOJ back a class action lawsuit accusing Nvidia of misleading investors by downplaying the impact of crypto mining on its 2017-2018 revenue.

A class action lawsuit accusing Nvidia of misleading investors about the contribution of crypto mining to its revenue between 2017 and 2018 is gaining momentum. The U.S. Solicitor General and the Securities and Exchange Commission (SEC) backed the case. Officials argue that the lawsuit, which claims Nvidia downplayed the role of crypto miners in its financial growth, should be allowed to move forward to the U.S. Supreme Court.

On October 2, U.S. Solicitor General Elizabeth Prelogar and SEC senior attorney Theodore Weiman filed an amicus brief, stating that the lawsuit contains sufficient details to be revived. The brief, supported by both the Department of Justice (DOJ) and the SEC, reinforces allegations that Nvidia misrepresented its revenue growth by attributing it mainly to gaming demand, while allegedly minimizing the significant role that crypto mining played in boosting sales.

Evidence Suggests Nvidia Knew of Crypto Influence on Sales

The lawsuit, which was initially dismissed by a lower court but partially revived by the Ninth Circuit Court of Appeals, is based on firsthand accounts from former Nvidia employees. One source, identified as FE 1, revealed that Nvidia maintained a global database tracking the sales of its GeForce graphics processing units (GPUs) to crypto miners, suggesting the company was aware of the growing demand from the cryptocurrency market.

Another former employee, dubbed FE 2, reportedly shared details of CEO Jensen Huang’s direct involvement in sales meetings where the impact of crypto mining on revenues was discussed. These insider accounts, along with internal documents, bolster claims that Nvidia’s leadership knowingly understated the influence of crypto mining on its financial performance.

Economic experts from the consulting firm Prysm Group provided further analysis, showing that Nvidia’s significant exposure to crypto mining, combined with a sharp drop in revenue after the 2018 cryptocurrency market crash, supports the argument that the company intentionally misled investors.

Potential Legal Ramifications for Nvidia

The DOJ and SEC argue that the evidence presented in the amicus brief satisfies the legal standard for “scienter,” or the intent to deceive, which is a key element in securities fraud cases. The authorities assert that Nvidia’s leadership was fully aware of the risks and benefits associated with crypto mining but failed to disclose this information to the public.

The lawsuit was initially dismissed in 2021 due to a lack of sufficient evidence, but an amended complaint led to the Ninth Circuit’s decision to revive parts of the case in June. Investors claim the case sets an important precedent for corporate transparency, particularly when it comes to disclosing emerging market risks, such as those posed by the cryptocurrency industry.

Nvidia has yet to comment on the ongoing legal proceedings.