The Securities and Exchange Commission today announced settled charges against technology company NVIDIA Corporation for inadequate disclosures concerning the impact of crypto mining on the company’s gaming business.
The SEC’s order finds that, during consecutive quarters in NVIDIA’s fiscal year 2018, the company failed to disclose that crypto mining was a significant element of its material revenue growth from the sale of its graphics processing units (GPUs) designed and marketed for gaming. Cryptomining is the process of obtaining crypto rewards in exchange for verifying crypto transactions on distributed ledgers. As demand for and interest in crypto rose in 2017, NVIDIA customers increasingly used its gaming GPUs for crypto mining. Details are in the SEC order: https://www.sec.gov/litigation/admin/2022/33-11060.pdf
What exactly does Nvidia do? Nvidia designs and sells GPUs for gaming, cryptocurrency mining, and professional applications, as well as chip systems for use in vehicles, robotics, and other tools. 1 Some of the company’s biggest competitors, include Intel Corp.
In two of its Forms 10-Q for its fiscal year 2018, NVIDIA reported material growth in revenue within its gaming business. NVIDIA had information, however, that this increase in gaming sales was driven in significant part by crypto mining. Despite this, NVIDIA did not disclose in its Forms 10-Q, as it was required to do, these significant earnings and cash flow fluctuations related to a volatile business for investors to ascertain the likelihood that past performance was indicative of future performance. The SEC’s order also finds that NVIDIA’s omissions of material information about the growth of its gaming business were misleading given that NVIDIA did make statements about how other parts of the company’s business were driven by demand for crypto, creating the impression that the company’s gaming business was not significantly affected by crypto mining.
The SEC’s order finds that NVIDIA violated Section 17(a)(2) and (3) of the Securities Act of 1933 and the disclosure provisions of the Securities Exchange Act of 1934. The order also finds that NVIDIA failed to maintain adequate disclosure controls and procedures. Without admitting or denying the SEC’s findings, NVIDIA agreed to a cease-and-desist order and to pay a $5.5 million penalty.
In 2018, Nvidia’s chips were popular for cryptomining, the process of obtaining crypto rewards in exchange for verifying transactions on distributed ledgers, the SEC said. However, the company failed to disclose that it was a “significant element” of its revenue growth from sales of chips designed for gaming, the SEC further added in a statement and charging order. Those omissions misled investors and analysts who were interested in understanding the impact of cryptomining on Nvidia’s business, the SEC SAID. Nvidia, which did not admit or deny the findings, has agreed to pay $5.5 million to settle civil charges.
JEFFREY NEWMAN, A FORMER PROSECUTOR, IS A WHISTLEBLOWER LAWYER WITH THE FIRM NEWMAN & SHAPIRO WHO REPRESENTS WHISTLEBLOWERS NATIONWIDE IN SEC WHISTLEBLOWER CLAIMS, FALSE CLAIMS ACT, AND CFTC CLAIMS. HE CAN BE REACHED AT 617-823-3217 OR JNEWMAN@NEWMANSHAPIRO.COM