US Supreme Court Tosses Case Involving Securities Fraud Suit Against Nvidia

The U.S. Supreme Court recently dismissed an appeal by Nvidia Corporation, leaving the company to face a securities fraud lawsuit accusing it of misleading shareholders about its reliance on crypto-mining revenue. The dismissal came four weeks after several justices questioned whether the case presented a broad legal question warranting a Supreme Court ruling. Nvidia, the world's most valuable company, argued that the lawsuit lacked enough specificity to proceed.

The lawsuit, led by the Stockholm, Sweden-based investment management firm E. Ohman J:or Fonder AB, alleges that Nvidia and its CEO, Jensen Huang, violated the Securities Exchange Act of 1934 by making false or misleading statements that downplayed the impact of crypto-related purchases on the company's revenue growth. Beginning in 2017, as the price of certain cryptocurrencies rose, Nvidia's chips became increasingly popular for cryptomining, a process that involves performing complex math equations to secure cryptocurrencies such as bitcoin and ether.

By late 2018, amid a decline in crypto profitability, Nvidia's revenue fell short of its projections, leading to a stock price drop in early November of that year. The plaintiffs accused Nvidia and its top officials of concealing the impact of cryptomining on its business. The suit seeks unspecified monetary damages to recoup the lost value of the Nvidia stock held by investors.

Nvidia agreed to pay $5.5 million to U.S. authorities in 2022 to settle charges that it did not properly disclose the impact of cryptomining on its gaming business, without admitting or denying the findings of federal regulators. A federal judge initially dismissed the lawsuit, but the San Francisco-based 9th U.S. Circuit Court of Appeals subsequently revived it. The 9th Circuit found that the plaintiffs had adequately alleged that Huang made "false or misleading statements and did so knowingly or recklessly," allowing their case to proceed.

Nvidia argued to the Supreme Court that the plaintiffs had failed to adequately show that the disputed corporate statements were false, or that the company had intentionally or recklessly misled investors, as required by law. The plaintiffs countered that their lawsuit contained strong enough allegations, gleaned from former employees, market analysis, and expert opinion, to survive Nvidia's request for dismissal and proceed to the discovery stage of litigation. President Joe Biden's administration supported the shareholders in the case.

The Supreme Court's decision not to intervene in the Nvidia case may have implications for future securities fraud lawsuits against other tech companies, particularly those in the AI and semiconductor sectors. While the court's one-line order provided no explanation, it suggests that the lower court's decision allowing the case to proceed was not deemed inappropriate. This could embolden shareholders to pursue similar cases against other tech companies, where market volatility and reliance on specific customer segments can lead to misrepresentation. However, the court's inaction does not set a binding precedent, and future cases will still need to meet the heightened legal bar set by the Private Securities Litigation Reform Act. Tech companies should remain vigilant in their disclosures and communications to avoid potential lawsuits.

In conclusion, the Supreme Court's decision not to intervene in the Nvidia case leaves the company to face a securities fraud lawsuit accusing it of misleading shareholders about its reliance on crypto-mining revenue. The decision may have implications for future securities fraud lawsuits against other tech companies, particularly those in the AI and semiconductor sectors. Tech companies should remain vigilant in their disclosures and communications to avoid potential lawsuits.