Key Points
- On March 25, a federal judge in California granted class certification to investors suing Nvidia and its CEO Jensen Huang
- Plaintiffs allege the company concealed more than $1 billion in graphics card sales to cryptocurrency miners between 2017 and 2018
- In 2022, Nvidia settled with the SEC for $5.5 million over similar disclosure failures regarding crypto’s impact on gaming segment revenue
- Eligible class members include anyone who purchased NVDA shares from August 10, 2017 through November 15, 2018
- A case management hearing is scheduled for April 21 over Zoom; shares were down 2.5% to $174.03
At press time, Nvidia (NVDA) was changing hands at $174.03, representing a 2.50% decline.
Shares slipped following news that a federal judge in California advanced the multi-year securities lawsuit toward potential trial proceedings.
What Sparked the Legal Action
The central allegation is direct: Nvidia attributed surging gaming graphics card sales to enthusiast gamers upgrading their systems. But that narrative was incomplete.
During 2017’s cryptocurrency surge, Ethereum mining operations were purchasing GeForce GPUs in massive quantities. This mining-driven demand secretly accounted for a substantial portion of what the company categorized as “gaming” segment revenue.
Quarterly results showed gaming revenue soaring 52% year-over-year, followed by 25% growth in subsequent quarters. According to the lawsuit, shareholders were never informed how dependent these figures were on volatile crypto market conditions.
When Bitcoin values collapsed in 2018 and mining operations became economically unviable, graphics card demand evaporated. Gaming revenue tumbled, exposing the crypto-fueled nature of the preceding boom.
Matters worsened during Nvidia’s Q4 FY2019 earnings discussion. Company executives explicitly attributed the revenue decline to the cryptocurrency mining collapse — a statement that directly undermined their previous characterization of the growth as gaming-driven.
Regulatory Settlement Preceded Investor Case
The Securities and Exchange Commission moved first. In May 2022, Nvidia agreed to a $5.5 million settlement after the regulator determined the company had omitted material information about cryptocurrency mining’s contribution to gaming GPU revenue in the second and third quarters of fiscal 2018.
According to the SEC’s enforcement division, these omissions prevented investors from accessing critical information needed for informed decision-making about the company’s business fundamentals.
Nvidia resolved the matter through a no-admit settlement — a framework that allowed the company to maintain its legal position while essentially confirming the underlying factual issues.
The private securities litigation now continues where regulatory action concluded. The question has shifted from whether disclosure lapses occurred to determining financial accountability.
Plaintiffs further contend that internal Nvidia personnel were actively monitoring cryptocurrency market fluctuations and connecting them to GPU sales patterns throughout the relevant quarters. This internal awareness, they argue, renders executive public statements about gaming demand not merely incomplete but deliberately misleading.
Judge Haywood Gilliam’s March 25 certification order establishes the investor class — encompassing all NVDA shareholders who acquired stock between August 10, 2017 and November 15, 2018. The certification is procedural and doesn’t assess the merits of fraud allegations.
The court has set a case management conference for April 21, accessible via public Zoom webinar.
In response, Nvidia stated: “Investors who purchased NVIDIA in the 2017-2018 timeframe have done incredibly well, as our corporate strategy unfolded as we consistently predicted. We will address the complaint in court.”
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