Nvidia Securities Fraud Case

By John Kruzel

WASHINGTON (Reuters) – The U.S. Supreme Court sidestepped a decision on whether to allow shareholders to proceed with a securities fraud lawsuit against Nvidia (NASDAQ:NVDA), which alleges the company misled investors about how much its sales were affected by the volatile cryptocurrency market.

The justices heard arguments in the case on Nov. 13 and dismissed Nvidia's appeal of a lower court's ruling. This ruling allowed a 2018 class-action suit led by the investment management firm E. Ohman J:or Fonder AB to move forward.

The Supreme Court chose not to resolve the underlying legal dispute and instead left the lower court's decision in place. The dismissal was announced via a one-line order without further explanation.

During the arguments, several justices expressed concerns about intervening. They questioned whether there was a clear legal issue to decide or just a dispute over facts, implying they were not well-placed to resolve the case due to its technical complexities.

The case revolved around whether the plaintiffs met the legal standards set by the 1995 Private Securities Litigation Reform Act, which aimed to filter out frivolous lawsuits. The plaintiffs accused Nvidia and CEO Jensen Huang of violating the Securities Exchange Act by falsely minimizing the crypto-related revenue growth in statements made during 2017 and 2018.

As cryptocurrency prices surged starting in 2017, demand for Nvidia's chips climbed for cryptomining, a process fundamental to securing various cryptocurrencies like bitcoin and ether. By late 2018, as the crypto market declined, Nvidia's performance fell short of expectations, causing its stock price to drop in early November.

The lawsuit seeks unspecified monetary damages to recover losses from Nvidia's declining stock value. Nvidia had previously settled with U.S. authorities in 2022 for $5.5 million over inadequate disclosures related to cryptomining's impact, without admitting or denying the allegations.

The initial dismissal of the lawsuit was overturned by the 9th U.S. Circuit Court of Appeals, which found sufficient basis for the claims that Huang made false or misleading statements knowingly or recklessly. Nvidia contended that the plaintiffs failed to demonstrate sufficient legal grounds for their claims.

The plaintiffs argued their allegations were robust enough, supported by insights from former employees, market analysis, and expert opinions, to justify moving forward in litigation.

The Biden administration backed the shareholders in this case, which is one of two recent Supreme Court cases addressing the right of private litigants to hold companies accountable for alleged securities fraud. The other case, involving Meta's Facebook (NASDAQ:META), was argued on Nov. 6 and also dismissed by the justices on Nov. 22.