Washington, D.C. – The U.S. Supreme Court has agreed to hear a bid by Nvidia Corporation (NVDA.O) to dismiss a securities fraud lawsuit accusing the artificial intelligence chipmaker of misleading investors about the extent of its sales to the volatile cryptocurrency industry. The justices accepted Nvidia’s appeal after a lower court revived the proposed class action brought by shareholders in California, led by the Stockholm-based investment management firm E. Ohman J:or Fonder AB.
Nvidia, headquartered in Santa Clara, California, has seen its market value surge as it became one of the primary beneficiaries of the artificial intelligence boom. The company produces high-performance graphics processing units (GPUs) that, in 2018, gained popularity for cryptomining—a process that involves solving complex mathematical equations to secure cryptocurrencies like Bitcoin.
Allegations and Lower Court Rulings
The plaintiffs in the lawsuit, originally filed in 2018, accuse Nvidia and its CEO, Jensen Huang, of violating the Securities Exchange Act of 1934. They allege that the company made statements in 2017 and 2018 that falsely minimized how much of Nvidia’s revenue growth stemmed from cryptocurrency-related sales. These omissions, the plaintiffs claim, misled investors and analysts who sought to understand the impact of cryptomining on Nvidia’s business.
In 2021, U.S. District Judge Haywood Gilliam Jr. dismissed the lawsuit, but the San Francisco-based 9th U.S. Circuit Court of Appeals revived it in a 2-1 ruling. The appeals court found that the plaintiffs had sufficiently alleged that Huang made “false or misleading statements and did so knowingly or recklessly,” thereby allowing the case to proceed.
Nvidia’s Position and Supreme Court Involvement
Nvidia has urged the Supreme Court to take up its appeal, arguing that the 9th Circuit’s ruling could lead to “abusive and speculative litigation.” The company contends that the decision sets a concerning precedent that could invite unwarranted lawsuits against corporations based on speculative claims.
In 2022, Nvidia agreed to pay $5.5 million to U.S. authorities to settle charges that it did not adequately disclose the impact of cryptomining on its gaming business. This settlement addressed regulatory concerns but did not resolve the ongoing securities fraud lawsuit brought by the shareholders.
The Supreme Court’s decision to hear Nvidia’s appeal comes as part of its next term, beginning in October. The outcome of this case could have significant implications for how companies disclose information related to emerging and volatile markets such as cryptocurrency.
Parallel Case: Meta’s Appeal
The Supreme Court has also agreed to hear a similar appeal by Meta Platforms, Inc. (META.O), formerly known as Facebook. Meta seeks to dismiss a private securities fraud lawsuit accusing it of misleading investors in 2017 and 2018 about the misuse of user data by the company and third parties. This case, led by Amalgamated Bank (AMAL.O), was allowed to proceed by a lower court, prompting Meta’s appeal.
Also Read: AMD Unveils New AI Processors, Sets Ambitious Two-Year Roadmap to Challenge Nvidia 2024
Implications for Corporate Disclosure and Investor Protections
The Supreme Court’s decisions in the Nvidia and Meta cases will be closely watched for their potential impact on corporate disclosure practices and investor protections. Legal experts suggest that these rulings could clarify the standards for what constitutes misleading statements by corporate executives and how courts should evaluate allegations of securities fraud.
For Nvidia, a ruling in its favor could provide relief from ongoing litigation and set a higher bar for securities fraud claims related to emerging industries. Conversely, if the Supreme Court upholds the 9th Circuit’s decision, it could reinforce the necessity for transparency in corporate communications, particularly in rapidly evolving sectors like cryptocurrency and artificial intelligence.
As the next Supreme Court term approaches, stakeholders from various industries will be paying attention to these landmark cases. The outcomes will not only affect Nvidia and Meta but also shape the broader landscape of securities litigation and corporate governance in the United States.
