By John Kruzel and Andrew Chung
WASHINGTON (Reuters) – The U.S. Supreme Court will hear arguments on Wednesday in Nvidia’s (NVDA) bid to torpedo a securities fraud lawsuit, accusing the artificial intelligence chipmaker of misleading investors about how much of its sales depended on of the volatile cryptocurrency market.
The judges will hear arguments in Nvidia’s appeal of a lower court’s decision that would allow a 2018 class action – a lawsuit led by Stockholm, Sweden-based asset manager E. Ohman J:of Fonder AB – to proceed.
It is one of two cases before the Supreme Court this month that could lead to rulings that make it harder for private litigants to hold companies accountable for alleged securities fraud. The other, involving Meta’s Facebook, was discussed on November 6.
At issue in the Nvidia case is whether plaintiffs met the heightened legal bar for filing private securities fraud lawsuits set by Congress in a 1995 federal law called the Private Securities Litigation Reform Act, which aimed to to rule out frivolous lawsuits.
Prosecutors accused Nvidia and its CEO Jensen Huang of violating a 1934 federal law, the Securities Exchange Act, by making statements in 2017 and 2018 that falsely downplayed how much of Nvidia’s revenue growth came from crypto- related purchases.
Starting in 2017, as the price of certain cryptocurrencies rose, Nvidia’s chips became increasingly popular for crypto mining, a process that involves performing complex mathematical equations to secure cryptocurrencies such as bitcoin and ether.
In late 2018, amid a decline in crypto profitability, Nvidia’s revenues fell short of expectations, causing its stock price to fall in early November of that year.
Prosecutors accused Nvidia and its top executives of hiding the impact of crypto mining on its business. The lawsuit seeks, in part, unspecified monetary damages to recoup the lost value of Nvidia stock in the hands of the investors.
A federal judge dismissed the lawsuit, but the San Francisco-based 9th U.S. Circuit Court of Appeals subsequently revived the lawsuit. The 9th Circuit ruled that prosecutors had adequately alleged that Huang had made “false or misleading statements and had done so knowingly or recklessly,” allowing their case to proceed.
Nvidia argued in a petition to the Supreme Court that the plaintiffs had failed to adequately demonstrate that the challenged company statements were false, or that the company had intentionally or recklessly misled investors, as required by law.
The plaintiffs countered that their suit contained sufficiently strong allegations – drawn from former employees, market analysis and expert advice – to survive Nvidia’s motion to dismiss and advance to the discovery phase of the lawsuit.
