Nvidia Investors Backed by US in Supreme Court Crypto Sales Case

Nvidia Corp. investors should be allowed to proceed with their suit alleging the chip maker misled the market about its dependence on sales to cryptocurrency miners, two federal agencies told the US Supreme Court.

The investors’ complaint contained detailed allegations sufficient to survive dismissal, the Department of Justice and the Securities and Exchange Commission said Wednesday in a friend of the court brief. The high court should affirm the proposed class action’s revival by the US Court of Appeals for the Ninth Circuit, the government said.

Solicitor General Elizabeth Prelogar also asked the justices for 10 minutes of argument time when the case is heard Nov. 13.

Private suits supplement the Justice Department’s criminal prosecutions and the SEC’s enforcement actions, she said. The government therefore has a strong interest in the proper reading of one of the statutes on investor litigation, the Private Securities Litigation Reform Act, she said.

The investors alleged that Nvidia and its CEO, Jensen Huang, misled them about how dependent the company was on revenue from crypto mining before a 2018 market downturn. A split panel of the Ninth Circuit revived the class action, saying the investors sufficiently alleged that Huang’s statements were materially false or misleading and that he had the necessary level of intent, called scienter, for securities fraud.

Nvidia brought the case to the Supreme Court, arguing that the complaint relied on a hired expert’s “invented” data about its revenue sources. “The panel’s decision badly misunderstands the PSLRA and eviscerates the guardrails that Congress erected to protect the public from abusive securities litigation,” Nvidia said Aug. 13 in a brief on the merits.

The investors responded Sept. 25, telling the high court that their complaint “draws on a wealth of reliable sources that collectively paint a clear picture of securities fraud.”

The sources they cited include firsthand accounts from former Nvidia executives worldwide “describing Nvidia’s and Huang’s constant internal tracking of crypto sales"; a Royal Bank of Canada report independently concluding that Nvidia earned $1.35 billion more from crypto-mining during the boom than it told the public, and other analyses; Nvidia’s own public statements and SEC filings; internal documents and data sources; and the circumstances surrounding the stock drop.

The government sided with the investors. “Treating an expert’s unsubstantiated opinion as a sufficient ground for inferring falsity or scienter would indeed be inconsistent with the PSLRA,” the Justice Department and SEC said. “But that is not what occurred here.”

The Ninth Circuit didn’t “permit respondents to establish scienter based ‘entirely’ on generalized allegations about internal company documents,” the government said. “That contention appears to be predicated on the absence of employee statements specifying the precise sales numbers reflected in NVIDIA’s data.”

Specific numbers recounted by the employees aren’t necessary to support an inference of intent in the circumstances here, it said.

Similarly, falsity wasn’t alleged on the basis of an unsubstantiated report, the agencies said. The Prysm Group report was detailed and indicated the facts it drew on, they said. And the Ninth Circuit used the report in combination with “an outside report, the accounts of former employees, and the drop in NVIDIA’s revenues after the crypto crash—each of which reinforced Prysm’s conclusion that crypto demand had accounted for a higher proportion of NVIDIA’s sales revenues than Huang had publicly suggested,” the government said.

Gupta Wessler LLP, Bernstein Litowitz Berger & Grossmann LLP, and Kessler Topaz Meltzer & Check LLP represent the investors. Hogan Lovells US LLP and Cooley LLP represent Nvidia.

The case is NVIDIA Corp. v. E. Ohman J:or Fonder AB, U.S., No. 23-970, amicus brief 10/2/24.