California judge dismisses lawsuit accusing Nvidia of inflating sales during 2017-2018 bull run

On March 2, a three-year lawsuit accusing Nvidia of "falsely reporting $1 billion in sales" during the 2017/2018 bull run came to an end when a California district court judge ruled in favor of the GPU maker.

The lawsuit accused Nvidia of misleading investors by exaggerating demand from gamers as its primary sales target. According to a summary of court documents obtained by Law360, Judge Haywood Gilliam granted Nvidia’s motion to dismiss the lawsuit on the grounds that the plaintiff’s witnesses (former Nvidia employees) could not prove that the manufacturer acted “intentionally and recklessly” when it failed to disclose that a significant portion of its revenue in 2017 and 2018 came from cryptocurrency miners.

The lead plaintiff is Ironworkers Local 580 United Fund, which operates an employee benefit plan that invests in Nvidia stock. It also claims to be acting “on behalf of all other persons” who purchased Nvidia stock between May 10, 2017, and November 14, 2018.

The plaintiffs cited reports from Prysm Group and RBC Capital Markets, saying Nvidia understated sales of crypto mining-related hardware by $1.13 billion to $1.35 billion.

In yesterday’s ruling, Judge Gilliam cleared Nvidia of all charges, writing in his decision that “it is not sufficient to allege that gaming is the defendant’s core business.” The judge also rejected the plaintiff’s other arguments that the defendant violated securities laws and dismissed the case without permission to amend:

“To prove that lack of awareness must be reckless, the plaintiff must allege facts that reflect a degree of intent or conscious wrongdoing.”

Nvidia saw rapid growth in the second half of 2017 and the first half of 2018. However, its stock price fell nearly 30% in late 2018 after the company announced a forecast revenue decline, sparking allegations that Nvidia had failed to properly inform investors that a large portion of its revenue came from mining-related GPU sales.

Nvidia has since become a driving force in the development of GPU miners, and on Feb. 25, Nvidia CFO Collette Kress said she expects the company to sell $50 million in mining hardware by the end of the first quarter of 2021.