Silicon Valley giant Nvidia urged the Supreme Court on Aug. 13 to turn away a shareholders’ fraud lawsuit, alleging they falsely claimed that the company’s CEO made public statements that contradicted its own internal reports.
The new filing previews arguments the company will make when the Supreme Court hears the appeal, known as Nvidia Corp. v. E. Ohman J:or Fonder AB, in the fall.
If Nvidia wins the case, companies may find it easier to have shareholder suits summarily dismissed and not incur the costs of making a full-fledged legal defense.
Based in Santa Clara, California, Nvidia is known for its graphics processors commonly used in artificial intelligence development. Nvidia CEO Jensen Huang is also a petitioner. The lead respondent is E. Ohman J:or Fonder AB, an investment management firm in Stockholm, Sweden.
The case comes after Nvidia agreed in May 2022 to pay the U.S. Securities and Exchange Commission (SEC) $5.5 million to settle civil charges that the company failed to properly disclose the effect of cryptocurrency mining on its gaming operations. The SEC said that in two quarters in fiscal 2018, the company did not disclose that crypto mining was a “significant element” of its revenue growth from sales of chips made for gaming.
U.S. District Judge Haywood Gilliam threw out the shareholders’ lawsuit in 2020, finding that the shareholders had failed to show that the company had made false statements.
A divided U.S. Court of Appeals for the Ninth Circuit reinstated it in August 2023, finding the shareholders’ allegations legally sufficient to proceed with the case.
Nvidia filed a petition with the Supreme Court on March 4, which the justices granted without comment on June 17. On July 13, the court scheduled oral arguments for Nov. 13.
In the Supreme Court case, the shareholders argue that because of the volatility of cryptocurrency markets, Nvidia was exposed to greater risk than it disclosed. After the company fell short of revenue expectations in November 2018, shares plummeted by 28.5 percent in two days.
“Analysts immediately recognized this as a reversal of NVIDIA’s prior reassurances that mining-related demand represented a small portion of revenues.”
The problem is that the shareholders have not alleged “what any report allegedly reviewed by Huang actually said.”
“Undeterred, [the shareholders] attempted a workaround: They hired an expert to create data and then filed a class action alleging that NVIDIA and its CEO committed securities fraud by failing to disclose the data invented by [the shareholders’] expert,” the brief says.
And the Ninth Circuit was wrong to find that Huang knew about the alleged wrongdoing because he “was a hands-on CEO who ‘would have’ reviewed internal records, which in turn ‘would have shown’ numbers consistent with the expert’s opinion,” it added.
As Circuit Judge Gabriel Sanchez “explained in his vigorous dissent, the panel’s decision badly misunderstands the [Private Securities Litigation Reform Act] and eviscerates the guardrails that Congress erected to protect the public from abusive securities litigation,” according to the brief.
Congress created the Private Securities Litigation Reform Act of 1955 to curb abuses in class action lawsuits related to securities. To discourage litigants from engaging in fishing expeditions during the discovery process whenever a company’s stock drops, the statute ratcheted up the requirements needed for securities fraud complaints.
The Epoch Times has reached to the respondents’ attorneys, Deepak Gupta of Gupta Wessler in Washington and Gregory P. Joseph of Joseph Hage Aaronson in New York City, for comment.
