The Supreme Court ruled on Wednesday that chipmaker Nvidia is trying to avoid a lawsuit alleging that management misled investors about the extent to which the company's revenue depended on volatile cryptocurrency miners. We considered bidding.
Nvidia asked the Supreme Court to reverse a lower appellate court's ruling that a lawsuit brought by its shareholders meets a high legal bar to advance securities fraud charges against the chipmaker.
Some of the justices seemed reluctant to have the Supreme Court weigh in on the case, suggesting it may not need a blanket rule to make securities fraud claims more difficult. .
“It's less and less clear why we brought this case and why you should win,” Justice Elena Kagan said during oral arguments Wednesday.
The allegations date back to 2018, when the company announced that it missed revenue estimates for the previous quarter and that total revenue for the next quarter would be down year-over-year.
Over the next two business days, NVIDIA stock fell 28.5%.
Nvidia offers graphics processing units (GPUs) that are primarily used for video games, but can also be used to mine cryptocurrencies. The crypto market is known to be very volatile, and the demand for these GPUs can fluctuate.
“The crypto hangover lasted longer than expected,” Nvidia CEO Jensen Huang told analysts after the results were announced.
Some shareholders who held NVIDIA stock in the months before the company's forecasts slumped were concerned about how much of the company's revenue was dependent on crypto mining and the associated revenue uncertainty. He claims that he was misled.
The case was initially dismissed, but after the Ninth Circuit Court of Appeals in San Francisco reversed part of the ruling last year, NVIDIA asked the Supreme Court to intervene.
Nvidia is the lead plaintiff, Swedish investment firm Orman J.: Orr Fonder, said it was based on legal standards established by the Private Securities Litigation Reform Act, a 1995 federal law aimed at preventing frivolous securities lawsuits. The government objected to this, arguing that it did not meet the requirements.
Orman's lawsuit alleges discrepancies between public statements from Nvidia executives and internal company documents.
“When the analyst asked him repeatedly, [Huang] If cryptocurrencies are boosting game sales, he argues, this is a mistake, arguing that the effect of cryptocurrencies is “small but not zero.” He did not express any anxiety. “We know every move in the market,” he said. We are masters at managing our own channels,” Plaintiffs' lawyer Deepak Gupta told the judge.
Plaintiffs did not have access to these documents at this stage. That means the claims are based primarily on anecdotes from former employees, reports from market analysts, and Mr. Huang's comments to analysts.
Nvidia disputed this, arguing that Orman's evidence did not provide enough detail to meet federal standards.
“It's dangerous to say that these details are enough to bring charges,” Nvidia lawyer Neil Katyal said Wednesday, adding: “And since there is no indication when the CEO knew, their new idea that these employees are enough must certainly be rejected.” “
Katyal also objected to the company's citation of two expert opinion reports, arguing that they lacked detailed methodology and comparative analysis to verify their reliability.
“Rather than relying on 'proprietary data' that the report will never tell us about, it reveals the methodology and the problem of large, huge gaps in the inference that we have briefly detailed. “If you could overcome all of that.'' What if you didn't treat cryptographers, cryptocurrency miners, and gamers as different people, even though they are often the same? Yes, I think such a report would be useful. ” he quipped.
“In this case, it's miles away from there. It's a report that, sure, they went to Harvard, but I don't think it says much about the real state of the world beyond that.” added.
Mr. Gupta called Nvidia's claims an “inaccurate characterization” of a report and claimed that economic consulting firm Prism Group was “fundamentally” doing “mathematics.”
“We were taking publicly available numbers and doing some multiplication,” he said.
If the Supreme Court blocks the class action lawsuit against NVIDIA from proceeding, the ruling would likely strengthen the current legal standards required for similar types of lawsuits.
The high court appeared to be on the fence about whether to allow the case to proceed.
“Is this whole case just a matter of error correction? Or are these particular documents not accurate enough? In fact, if we clarify what rules, our case is already I don’t know if it’s any clearer than what you’re saying,” Justice Sonia Sotomayor asked Katyal.
Chief Justice John Roberts questioned whether a compromise was possible on the issue.
“So how do you find that sweet spot in terms of when the PSLRA is satisfied, given that I think the positions on both sides are a little too absolute?” he asked Katiyar. “So this law was intended to do something, so it can't just be direct evidence. On the other hand, so that you can't just insist on direct evidence before proceeding with a charge. I think so.”
Katyal said that under the “rules” he proposed, not only direct evidence but also circumstantial evidence would be admissible, but at least the plaintiff would have to show “specifically what the CEO knew and when he knew it.” I said yes.
The high court lawsuit comes nearly two years after NVIDIA reached a $5.5 million settlement with the Securities and Exchange Commission. NVIDIA alleges in two filings that it failed to disclose that crypto mining was a major source of increased revenue from designing and selling GPUs. For games.
As part of the settlement, NVIDIA did not admit or deny the claims.
The lawsuit is one of two class-action lawsuits against tech companies that will be filed in the Supreme Court in November. Last week, the High Court heard Facebook's request to block a shareholder lawsuit over the Cambridge Analytica data scandal.
Contributed by Ella Lee.
