NVIDIA shareholders and investors are suing the company, claiming that the revenue reported in 2018 does not correspond to the purchase of GPU hardware by gamers, but by cryptocurrency miners, taking advantage of the boom in these digital assets in 2017.
Since December 2018, the multinational company specializing in the development of graphic processing units and integrated circuit technologies, Nvidia Corporation, is the subject of a demand federal by several shareholders and investors who claim that the company manipulated the source of its income in 2018.
According to the lawsuit, filed with the Federal Judge Haywood Stirling Gilliam, Jr. of the United States District Court for the Northern District of California, NVIDIA reflected revenue from the sale of GPU hardware equipment (Graphics Processing Unitss) for more than $1.000 billion. However, the company's revenue was reflected as coming from the sale of these teams to players, and not to mineros de cryptocurrencies, , as it actually happened.
“NVIDIA’s flagship product line is its “GeForce” GPU brand, a favorite of gaming enthusiasts and fans.”
The shareholders claim that the company took advantage of the cryptocurrency craze that arose in 2017 to capitalize on demand for GeForce GPU mining rigs, but instead of acknowledging this strategy, it chose to “falsely represent” that the increase in revenue came from selling these rigs as gaming hardware, as these rigs were the flagship product for gamers. NVIDIA’s strategy led to severe losses when the cryptocurrency boom died down by the following year and the company’s stock price plummeted, leaving NVIDIA with too much GPU inventory and impossible sales projections to meet.
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$147 million liquidated in shares
The lawsuit further alleges that the company took advantage of the unsustainable boom in GPU sales to miners to liquidate a total of $147 million worth of company stock, which was sold at artificially inflated prices. Shareholders and investors also claim that NVIDIA executives tried to make it appear that their revenue was protected from fluctuations in cryptocurrency markets by refusing to acknowledge that such revenue came from the direct sale of GPU equipment to cryptocurrency miners, as a way to prevent shareholders and investors from discounting the company's stock due to the typical volatility of these crypto assets.
“[Miners] found that GeForce GPUs were particularly adept at quickly processing the calculations required by cryptocurrency mining, and at a fraction of the cost of more powerful chips designed for scientific and industrial environments… Cryptocurrency mining rewards rose rapidly, as did demand for GeForce GPU rigs.”
But in 2018, when the cryptocurrency frenzy died down and miners began to shut down operations due to the market decline, NVIDIA shareholders and investors began to see huge losses, so they decided to file a lawsuit against the executives. As already mentioned, the main claim of the affected parties is that the company misrepresented the origin of the funds, hiding the true origin of these and misleading the shareholders. They allege that NVIDIA's actions are a clear violation of the US Stock Exchange Law, for which reason they claim damages caused by hidden strategies and practices.
Several executives were sued
The class action lawsuit filed in the United States District Court for the Northern District of California alleges Jensen Huang, CEO of NVIDIA; Collette Kress, Chief Financial Officer and Jeff Fisher, Senior Vice President and Chief Gaming Officer of the company.
“NVIDIA’s top executives… knew that peak GeForce GPU sales were not sustainable.”
According to the lawsuit, these executives were aware of the company's business strategy and knew full well that the increase in sales of GeForce GPUs was directly related to the boom in cryptocurrency mining activity, and not to the demand for equipment from gamers. The lawsuit also claims that these executives were aware that the sales strategy implemented was unsustainable in the long term and would cause losses to NVIDIA investors and shareholders.
In the past, a similar experience occurred with the equipment developed by the company. Advance Micro Devices (AMD), one of the main rivals of NVIDIA GPU equipment. When the mining boom began to awaken, AMD equipment was the most sought after by users, who wanted to profit from cryptocurrency mining. However, although AMD enjoyed great popularity, there came a point where the demand for these equipment collapsed, and with it, the profits of the company and its shareholders. It was then to be expected that AMD's experience would teach investors and NVIDIA executives not to take for granted the income from cryptocurrency-related markets, which at any moment can take a heartbreaking turn.
A new twist in demand
Although the lawsuit filed dates back to 2018, on September 14 of this year a new lawsuit was filed update, which states that the plaintiffs lack sufficient evidence to support the claim and investigate the "crypto craze" that the company allegedly experienced in 2017. The update was also presented by Law360 in a report alleging that NVIDIA's lawyers have dismissed the company's plaintiffs' allegations as inconsistent and illegitimate.
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