U.S. Supreme Court hears Nvidia’s lawsuit to avoid securities fraud lawsuit

Author: John Kruzel and Andrew Chung

WASHINGTON (Reuters) – The U.S. Supreme Court on Wednesday began hearing arguments from Nvidia as it seeks to dismiss a securities fraud lawsuit that accuses the artificial intelligence chipmaker of misleading investors about how much of its sales depended on volatile cryptocurrency markets. .

Nvidia is appealing a lower court’s decision to allow a 2018 class action lawsuit, led by Stockholm, Sweden-based investment management firm E. Ohman J:or Fonder AB, to proceed. The debate continues.

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. Another Facebook controversy involving Meta occurred on November 6.

At issue in the Nvidia case is whether the plaintiffs cleared the strict legal threshold for filing private securities fraud lawsuits set by Congress in the Private Securities Litigation Reform Act of 1995, a federal law designed to screen out frivolous lawsuits.

Liberal Justice Ketanji Brown Jackson expressed concern that the standard Nvidia asked the court to adopt would impose an undue burden on plaintiffs.

“I guess my concern is that you seem to be requiring plaintiffs to actually have the evidence in order to argue their case,” Jackson said, noting that plaintiffs often don’t get key evidence until later in the litigation.

The plaintiffs allege that Nvidia and its CEO, Jensen Huang, violated the Securities Exchange Act of 1934 by making statements in 2017 and 2018 that falsely downplayed how much of Nvidia’s revenue growth came from cryptocurrency-related purchases. .

Nvidia’s defense attorney, Neal Katyal, said the lawsuit doesn’t stand up to case-by-case scrutiny.

“It’s certainly a long complaint. I’ll find them. But it’s a long complaint – like a marshmallow – … that looks big but goes away,” Ketil said .

Beginning in 2017, Nvidia’s chips became increasingly popular in cryptocurrency mining, a process that involves executing complex mathematical equations to secure cryptocurrencies such as Bitcoin and Ethereum, as the prices of some cryptocurrencies rose. safety.

By the end of 2018, Nvidia’s revenue was lower than expected due to declining cryptocurrency profitability, causing its stock price to fall in early November of that year.

The plaintiffs accuse Nvidia and its senior officials of concealing the impact of cryptocurrency mining on its business. The lawsuit seeks unspecified monetary damages, in part to cover the loss in value of Nvidia shares held by investors.

A federal judge dismissed the lawsuit, but the San Francisco-based 9th U.S. Circuit Court of Appeals later reinstated it. The Ninth Circuit held that the plaintiffs sufficiently alleged that Huang made “false or misleading statements and did so knowingly or recklessly,” allowing their case to proceed.

Nvidia argued in its Supreme Court filing that the plaintiffs failed to adequately prove, as required by law, that the company’s statements at issue were false or that the company intentionally or recklessly misled investors.

The plaintiffs counter that their lawsuit contains strong enough allegations — gleaned from former employees, market analysis and expert opinions — to withstand Nvidia’s request for dismissal and should proceed.

President Joe Biden’s administration sided with shareholders in the case before a judge.

In 2022, Nvidia agreed to pay $5.5 million to U.S. authorities to settle charges that it failed to properly disclose the impact of cryptocurrency mining on its gaming business, but did not admit or deny the federal regulator’s findings.

The Facebook case argued before a judge last week involves a federal securities fraud lawsuit filed by shareholders led by Union Bank, which accuses the social media platform of misleading them about the misuse of its users’ data.

The Supreme Court has limited the power of the Securities and Exchange Commission, the federal agency that regulates securities fraud, in previous rulings. Its ruling in the Facebook and Nvidia cases, expected by the end of June, may now make it harder for private litigants to hold companies accountable for such behavior.

(Reporting by John Kruzel; Editing by Will Dunham)