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Ninth Circuit Revives "Crypto Mining" Securities Fraud Suit Against NVIDIA

August 28, 2023

On August 25, 2023, the U.S. Court of Appeals for the Ninth Circuit reversed the dismissal of a long-running securities fraud class action against NVIDIA, the world’s largest maker of graphic processing units (GPUs). 

The 2019 lawsuit alleges that in 2017 and 2018, NVIDIA’s revenues skyrocketed when it sold a record number of its GPUs to cryptocurrency miners who use the company’s chips to verify crypto transactions on digital blockchain ledgers using extensive computer power. As a result, and unbeknownst to the market, NVIDIA’s sales to crypto miners rapidly outpaced sales to the company’s traditional customer base of video gamers. The suit alleges that NVIDIA misrepresented the true impact of its cryptocurrency-related sales on the company’s financial performance in order to conceal the extent to which NVIDIA’s revenue growth depended on the notoriously volatile demand for crypto. After the price of Etherium, a leading digital token, nosedived in 2018, so too did NVIDIA’s revenues and its stock price, damaging investors by billions of dollars in market losses.

In reversing U.S. District Judge Haywood S. Gilliam Jr.’s 2021 order dismissing the case, the Ninth Circuit held that the plaintiffs adequately alleged securities fraud claims against NVIDIA and its CEO Jensen Huang. Writing for the court, Circuit Judge William A. Fletcher found that the investors’ complaint sufficiently alleged that NVIDIA and Huang “made materially false or misleading statements about the company’s exposure to crypto, leading investors and analysts to believe that NVIDIA’s crypto-related revenues were much smaller than they actually were.”

In sustaining the complaint, the Ninth Circuit rejected NVIDIA’s argument that the plaintiffs’ expert economists, who estimated that the company had understated its crypto revenues by approximately $1.13 billion during the class period, failed to use a reliable methodology because their analysis did not depend on internal evidence from the company. As the court explained, the Private Securities Litigation Reform Act (PSLRA) “nowhere requires experts to rely on internal data and witness statements to prove falsity. It merely requires that the complaint state with particularity all facts on which the belief [underlying the allegations of falsity] is formed.” The Ninth Circuit concluded: “To categorically hold that, to be credible, an expert opinion must rely on internal data and witness statements would place an onerous and undue pre-discovery burden on plaintiffs in securities fraud cases. We decline to turn the PSLRA’s formidable pleading requirement into an impossible one.” The court was also swayed by “the inescapable and otherwise inexplicable fact that when the price of cryptocurrency and the market for crypto mining GPUs collapsed, NVIDIA was forced on November 15, 2018, at the end of the Class Period, to reduce its revenue forecast by 7%.”

The case will now proceed to discovery.

The Kessler Topaz team representing Plaintiffs and the shareholder class on the appeal included Matthew Mustokoff, Andrew Zivitz, and Jennifer Joost.

The case is In re Nvidia Corp. Securities Litigation, case number 3:19-cv-00766, pending in the U.S. District Court for the Northern District of California, Oakland Division.