Nvidia's legal battle with shareholders takes an unexpected turn as the Supreme Court steps away from a closely watched securities fraud dispute.
According to Reuters, the Supreme Court has dismissed Nvidia's appeal against a securities fraud lawsuit that accused the AI chipmaker of misleading investors about its cryptocurrency-related revenue.
The dismissal, announced Wednesday, effectively maintains the lower court's decision allowing the 2018 class action lawsuit to proceed. The case, led by Swedish investment firm E. Ohman J:or Fonder AB, centers on allegations that Nvidia and CEO Jensen Huang made misleading statements about the company's dependence on cryptocurrency mining sales.
The dispute originated during the cryptocurrency boom of 2017 when Nvidia's graphics chips became increasingly popular for cryptocurrency mining operations. Shareholders claim the company deliberately downplayed the significance of crypto-related purchases in their revenue growth during 2017 and 2018. The situation came to a head when Nvidia's revenue fell short of projections in late 2018, coinciding with a decline in cryptocurrency profitability.
The company had previously settled with U.S. authorities in 2022, paying $5.5 million over charges of inadequate disclosure regarding cryptomining's impact on its gaming business. This settlement, however, came without any admission of wrongdoing from Nvidia. The current shareholder lawsuit seeks additional monetary damages to recover losses from the stock's decline.
The legal proceedings have highlighted the complex relationship between technology companies and the volatile cryptocurrency market. The case raises questions about corporate transparency and the responsibility of companies to disclose market dependencies to their investors.
The Supreme Court's involvement centered on interpreting the Private Securities Litigation Reform Act of 1995, which establishes stringent requirements for securities fraud lawsuits. The justices expressed hesitation during arguments about dealing with the case's technical complexities and questioned whether there was a clear legal issue to resolve.
Deepak Gupta, representing the shareholders, commented on the dismissal's significance:
The corporate Supreme Court bar, supported by the U.S. Chamber and its allies, often tries to gin up nonexistent legal issues in an effort to curtail class actions. We hope the court will think twice the next time a corporation uses the same playbook.
The case's progression through the courts has revealed differing interpretations of what constitutes adequate evidence in securities fraud cases. The 9th Circuit Court of Appeals previously found sufficient basis in the shareholders' allegations to allow the case to continue.
The Supreme Court's dismissal represents a significant development in the ongoing legal battle between Nvidia and its shareholders. The case will now return to lower courts for further proceedings, with the 9th Circuit's decision remaining in effect.
An Nvidia spokesperson has indicated the company's readiness to continue its defense, emphasizing the importance of consistent standards in securities litigation. The Biden administration's support for the shareholders adds another layer of significance to the case's outcome.
Nvidia Corporation and CEO Jensen Huang face continued legal challenges as the securities fraud lawsuit moves forward in lower courts. The case stems from alleged misrepresentations about cryptocurrency mining's impact on company revenues during 2017-2018, leading to significant shareholder losses when crypto markets declined.
The Supreme Court's dismissal allows the lawsuit to proceed through normal litigation channels, maintaining the 9th Circuit Court's decision that found sufficient evidence of potentially false or misleading statements. The outcome could establish important precedents for corporate disclosure requirements and shareholder rights in cases involving emerging technologies and volatile markets.
