In an unexpected turn of events, the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have taken strong measures to support the recently revived class action lawsuit against Nvidia (NASDAQ: NVDA).
The legal battle centers on the accusation that the semiconductor business misrepresented the source of over $1 billion in GPU sales. Nvidia attributed it to gaming-related demand, while the case alleges that this was an intentional misdirection and that the revenue was driven by GPU sales to crypto miners.
The initial case against Nvidia
Originally filed in 2018, the case was dismissed by a district court in 2021. Subsequently, it was revived by the San Francisco based Ninth Circuit Court of Appeals on August 28, 2023, in a split 2-1 decision.
Following the decision, Nvidia appealed to the Supreme Court to have the case dismissed — with the date for initial arguments being set as November 13.
Federal agencies argue against Nvidia case dismissal
Up to now, while interesting, the case had been fairly typical. This is no longer the case, as two federal agencies, the DOJ and SEC filed an amicus brief on October 2, urging the Supreme Court to let the case go forward.
In the brief, six officials, led by Elizabeth B. Prelogar, the Solicitor General of the United States, and senior SEC appellate Counsel Theodore J. Weiman, argued that sufficient details were present to not dismiss the case.
The brief acknowledged findings from a 2019 report by the Royal Bank of Canada, which alleges that Nvidia understated its cryptocurrency-related revenues to the tune of $1.35 billion between February 2017 and July 2018, as well as earlier evidence submitted based on similar analyses conducted by The Prysm Group, an economic consulting firm.
Additionally, the brief highlighted how the Court of Appeals relied on the fact that NVDA earnings collapsed in tandem with cryptocurrency prices.
Insiders and experts weigh in on Nvidia case
Furthermore, the filing cites two firsthand accounts from insiders — former employees dubbed FE 1 and FE 2.
FE 1’s claim alleges that the company maintained a global database specifically for tracking the sale of GeForce series GPUs to crypto miners, while FE 2 alleges that CEO Jensen Huang was directly involved in sales meetings where the impact of cryptocurrency mining on revenues was discussed.
FE 2’s statements also allege that Huang brought up miners’ preference for GeForce GPUs during at least two different Quarterly Business Reviews (QBRs).
Another amicus brief was filed on the same day by a group of 12 former SEC officials, although it primarily focused on strictly legal matters. This was supplemented by six separate briefs filed by the American Association for Justice, The Anti-Fraud Coalition, scholars of civil procedure, certain institutional investors, quantitative experts, and Brian T. Fitzpatrick, academic, author of ‘The Conservative Case for Class Actions’ and professor at Vanderbilt Law School.
The lawsuit’s effect on Nvidia stock price
At press time, Nvidia shares are trading at $122.74, having gained 0.81% over the course of the last 24 hours, bringing the price increase for this week up to a total of 2.13%. On a monthly basis, the stock is up 15.68% and has risen by 154.73% year-to-date (YTD).
Nvidia stock price weekly chart. Source: Finbold
Traders should bear in mind that the market implications of events like these are not necessarily immediate — investors, retail and institutional alike, do at times take a while to weigh their options.
Still, close attention should be paid to how the case develops — particularly around the initial arguments set for November 13.
Ultimately, the ruling will serve as a catalyst one way or another, depending on the outcome — but amid the company’s stellar performance and the recent release and reportedly high demand for Blackwell chips, even accounting for ongoing issues in the critical Chinese market, it’s difficult to envision how even a legal defeat could seriously hamper Nvidia’s upward momentum.
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