By John Kruzel and Andrew Chung

Supreme Court Hears Nvidia Securities Fraud Case

WASHINGTON (Reuters) – The U.S. Supreme Court is set on Wednesday to hear arguments in Nvidia (NASDAQ:NVDA)'s bid to dismiss a securities fraud lawsuit. The lawsuit accuses the artificial intelligence chipmaker of misleading investors about the extent of its sales dependence on the volatile cryptocurrency market.

The justices will hear arguments in Nvidia's appeal of a lower court's decision that allowed a 2018 class action lawsuit—led by the investment management firm E. Ohman J:or Fonder AB from Stockholm, Sweden—to proceed.

This case is among two that could make it harder for private litigants to hold companies accountable for alleged securities fraud. The other case involved Meta's Facebook (NASDAQ:META), argued on Nov. 6.

Legal Threshold for Private Securities Fraud

At issue is whether the plaintiffs cleared the heightened legal bar for private securities fraud suits set by the 1995 Private Securities Litigation Reform Act, aimed at filtering out frivolous lawsuits.

The plaintiffs accuse Nvidia and its CEO, Jensen Huang, of violating the Securities Exchange Act by making misleading statements in 2017 and 2018 that downplayed the impact of cryptocurrency-related sales on Nvidia's revenue growth.

Cryptomining and Revenue Decline

As cryptocurrency prices soared in 2017, demand for Nvidia's chips for cryptomining increased. However, by late 2018, a decline in cryptocurrency profitability led to a revenue drop for Nvidia, affecting its stock price.

The plaintiffs argue the company concealed the importance of cryptomining on its business, seeking to recover the lost value of Nvidia stock held by investors.

Court Proceedings

Although a federal judge dismissed the lawsuit, the 9th U.S. Circuit Court of Appeals revived it, citing adequate allegations against Huang for making false statements knowingly or recklessly.

Nvidia contended that the plaintiffs did not sufficiently demonstrate that the disputed statements were false or that the company misled investors. The plaintiffs argue they have adequate evidence from former employees and expert opinions to proceed.

The Biden administration has expressed support for the shareholders in this Supreme Court case.

In 2022, Nvidia agreed to pay $5.5 million to settle charges for not disclosing the crypto impact on its gaming business, without admitting guilt.

Facebook Case Context

The Facebook case involves a federal securities fraud lawsuit by shareholders accusing the platform of misleading them about the misuse of user data. The Supreme Court's rulings on both cases, expected by the end of June, could significantly impact private litigants' ability to hold companies liable for securities fraud.