In an unexpected twist, the US Department of Justice (DOJ) and Securities and Exchange Commission (SEC) took strong action against Nvidia (NASDAQ: NVDA ) in a recently revived class action lawsuit.
The legal battle centers on allegations that the chip company misled investors and regulators about the source of more than $1 billion in GPU graphics card sales. Nvidia attributed this revenue to demand related to the gaming market. However, according to people at the Department of Justice, this was a deliberate misrepresentation, because the revenue was attributed to the sale of graphics cards to crypto miners.
The original case against Nvidia
The lawsuit, originally filed in 2018, was rejected by a district court in 2021. Then, two years later, on August 28, 2023, the San Francisco-based Ninth Circuit Court of Appeals reopened the case in a split 2-1 decision. matter. Following the decision, Nvidia appealed to the Supreme Court to have the case dismissed. The first hearing is scheduled for November 13.
The authorities are arguing against dismissing the Nvidia case
So far, interesting as it was, the case was fairly typical. That’s no longer the case, however, as two federal agencies, the DOJ and the SEC, filed an amicus brief on October 2 calling on the Supreme Court to allow the case to proceed. In the filing, officials argued there were enough details to keep the case from being dismissed.
The submission acknowledged findings from the Royal Bank of Canada’s 2019 report. According to this, between February 2017 and July 2018, Nvidia underestimated its revenues related to the crypto market by $1.35 billion. In addition, the brief highlighted that the appeals court relied on the fact that Nvidia’s revenues collapsed in parallel with the price of cryptocurrencies.
Insiders and experts comment on the Nvidia case
Additionally, the filing cites two first-hand accounts from insiders — former employees named FE 1 and FE 2. According to FE 1, the company maintained a global database specifically to track sales of GeForce series GPUs to crypto miners. And FE 2 claims that CEO Jensen Huang was directly involved in sales discussions where the impact of cryptomining on the company’s revenues was discussed. According to FE 2’s claims, Huang raised miners’ preference for GeForce GPUs in at least two different quarterly business reviews.
Impact of lawsuit on Nvidia stock price
At the time of writing, Nvidia shares are trading at $122.74 after gaining 0.81% in the past 24 hours. Thus, a total price increase of 2.13% was achieved this week. On a monthly basis, the stock is up 15.68%, while on a year-to-date (YTD) basis, the stock is up 154.73%.
Traders should keep in mind that the market effects of such events may not be immediate. Investors sometimes take time to weigh their options. Still, close attention will be paid to how the case plays out — especially around the first hearing scheduled for Nov. 13.
Ultimately, the verdict will act as a catalyst one way or another depending on the outcome. But given the company’s stellar track record, it’s hard to imagine that even a legal defeat would seriously hamper Nvidia’s upward momentum.
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