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Nvidia fined $5.5 million for failing to mention cryptocurrency miners were some of its biggest customers for gaming GPUs

The US Securities and Exchange Commission (SEC) has fined Nvidia $5.5 million for not disclosing how much cryptocurrency mining has affected its gaming GPU business.

The SEC holds that Nvidia did not disclose that cryptocurrency mining was a “significant element” of its revenue growth during 2017 and hid the fact that this growth did not come directly from its gaming GPU business, as the company claimed.

Nvidia may have been able to avoid this SEC fine by disclosing the potential impact of cryptocurrency mining on gaming GPU demand in its Form 10-Q, in which the company is required to list risk factors for the business, but did not.

“Nvidia’s omissions of material information about the growth of its gaming business were misleading, as Nvidia made statements about how other parts of the company’s business were driven by demand for cryptocurrencies, creating the impression that the gaming business of the company were not significantly affected by cryptocurrency mining. .”

Nvidia has agreed to a cease and desist order and will pay the $5.5 million fine. However, the California-based company did not admit or deny the SEC’s findings.

Just a note that you will see the SEC refer to Nvidia’s 2018 fiscal year in the SEC filings [PDF warning], but this roughly correlates to the human earth year 2017 – Nvidia’s financial calendar is weird. This is actually an important detail as 2017/18 was the peak of the great cryptocurrency mining boom before the most recent in 2020/21. Just like in the previous 18 months, it was difficult to buy a graphics card in 2017 as the profitability of mining cryptocurrencies i.e. ethereum was very high.

But it didn’t end well for Nvidia. The company responded to the high demand for GPUs by making more of them – many, in fact. In 2019, the company had admitted Excessive midrange GPU inventory due to the cryptocurrency boom of previous years, and its share price went into a sharp decline for a short period.

Nvidia bounced back more than ever in the next few years, however, quickly making the 2018 stock price mountain (topping around $70) look like a bunch of moles by comparison. During late 2021, the company’s stock was valued at its highest value yet at $330. Today, its shares are worth $190 each, although the effect of this SEC filing could cause a turbulent few days for the company. .

Interestingly, Nvidia has recently managed to have a class action against him dismissed for similar allegations of fraud by its investors. In that lawsuit, it was alleged that “Economists determined that Nvidia earned at least $1.728 billion from sales to miners from May 2017 to July 2018 — meaning that Defendants underestimated Nvidia’s crypto-related GPU sales in $1.126 billion during the Class Period, all of which was contained in the company’s gaming segment.”

The class-action lawsuit alleged that investors failed to see the full picture and better prepare for Nvidia’s revenue volatility at the time, as well as the allegations made by the SEC. However, this collective action was unsuccessful; a California judge dismissed the case.

The class action would likely have netted Nvidia a lot more money than $5.5 million had it been successful, however.

Ultimately, a $5.5 million fine is just a slap on the wrist for a company like Nvidia. The company earned $26.91 billion in 2021, up 61% from the previous year. While it appears to have learned a lesson from the great cryptocurrency mining gold rush of 2017/18: it felt much safer with its response to the latest 2020/21 boom, releasing specially produced cryptocurrency cards and apparently keeping inventory a bit slimmer too.

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