SEC crypto/cyber series: v. NVIDIA Corporation (2022)

By meg0 | One Two Ten | 9 Jul 2022

SEC claims NVIDIA misled investors by not disclosing that crypto mining was a significant portion of their gaming business growth.

The Series

In May 2022, the U.S. Securities and Exchange Commission (SEC) announced they were nearly doubling the size of the Crypto Assets and Cyber Unit. This series will explore enforcement actions taken by this unit since its inception in 2017, plus earlier actions taken by the SEC prior to the formation of this unit.

The Crackdown

SEC Charges NVIDIA Corporation with Inadequate Disclosures about Impact of Cryptomining

Description: The Securities and Exchange Commission brought settled charges against technology company NVIDIA Corporation for inadequate disclosures concerning the impact of cryptomining on the company’s gaming business.

Category: Public Company Disclosure and Controls

Date Filed: 06 May 2022

Penalty: Without admitting or denying the SEC’s findings, NVIDIA agreed to a cease-and-desist order and to pay a $5.5 million penalty.

Violations: NVIDIA violated Section 17(a)(2) and (3) of the Securities Act of 1933 and the disclosure provisions of the Securities Exchange Act of 1934. The order also finds that NVIDIA failed to maintain adequate disclosure controls and procedures.

The Backstory

The SEC claims that NVIDIA filed inaccurate 10-Q reports in their 2018 fiscal year by failing to disclose that crypto mining was driving a significant part of their gaming business growth, despite knowing that was the case. The SEC determined that this misleading behavior was actionable because NVIDIA did disclose that other parts of their business were being boosted by the demand for crypto.

NVIDIA’s disclosure failures deprived investors of critical information to evaluate the company’s business in a key market. All issuers, including those that pursue opportunities involving emerging technology, must ensure that their disclosures are timely, complete, and accurate.

Kristina Littman, Chief of the SEC Enforcement Division’s Crypto Assets and Cyber Unit

These types of disclosures are relevant to investors because they help them assess if past performance is indicative of future performance. Fiscal 2018 was a record-breaking year for NVIDIA, as claimed in their own press release:

Record quarterly revenue of $2.91 billion, up 34 percent from a year ago
Record full-year revenue of $9.71 billion, up 41 percent from a year ago
Record quarterly GAAP gross margin of 61.9 percent, non-GAAP gross margin of 62.1 percent
Record full-year GAAP EPS of $4.82, up 88 percent from a year ago

Since Fiscal 2018, NVIDIA has continued on an upward trajectory with a large increase in revenue, with the exception of Fiscal 2020. Fiscal 2017 also shows a much larger revenue increase than previous years, which potentially may have been boosted by crypto mining as well. If so, it seems plausible that NVIDIA may not have known that this boost was being driven by crypto mining until the following year.