Class-Action Suit Against Nvidia Can Proceed After SCOTUS Dismisses Appeal

It's not common for the justices of the U.S. Supreme Court to admit that they've made a mistake. However, that's what happened on December 11, 2024, as SCOTUS dismissed the writ of certiorari they'd previously granted. In rejecting the appeal by Nvidia, it allows the case to enter discovery in district court.

This ruling may prove costly for the world's largest manufacturer of graphic processing units (GPUs). If Nvidia loses the case, damages could be in the billions.

False and Misleading Statements?

A class-action lawsuit was filed against Nvidia in the District Court of North California in 2019. Led by a Swedish investing interest, the suit claims Nvidia violated sections 10(b) and 20(a) of the Security Exchange Act of 1934.

The plaintiffs allege that Nvidia withheld information about sources for their revenue in 2017 and 2018. The suit claims that Nvidia experienced skyrocketing sales of their GPUs during this period due to increased need by cryptocurrency miners. Instead of disclosing the purchasers, Nvidia allegedly allowed the perception that the upswing in sales was due to purchases by gamers to remain in place, which would carry less risk.

In 2018, a 7% decline in income from the previous year forced Nvidia to admit the drop was due to a sharp falloff in crypto demand, triggered by the collapse of the digital token Etherium. The ensuing dip in Nvidia's stock price caught investors by surprise. The suit claims that Nvidia's lack of transparency caused dire financial consequences and seeks relief through damages.

Nvidia paid a fine of $5.5 million in 2022 to settle charges by the Securities and Exchange Commission (SEC) claiming Nvidia hadn't disclosed that crypto was the source of increased revenue. As part of the settlement, Nvidia didn't admit to any wrongdoing.

Proving Fraud Under Securities Law

The district court granted Nvidia's motion to dismiss, holding that the shareholders failed to show that Nvidia knowingly made false or misleading statements as required under the Private Securities Litigation Reform Act (PSLRA). However, on appeal, the Ninth Circuit reversed. In its decision, the appellate court held that shareholders provided enough evidence that it was sufficiently likely Nvidia's statements about its crypto exposure did qualify as "false and misleading" and that they made these claims purposefully.

This time, Nvidia appealed. The company claimed that shareholders could not overcome the high standard of evidence Congress has set for such claims. For example, shareholders could not point to internal documents demonstrating that Nvidia executives knew they were misleading investors.

Despite taking up the case, and presumably knowing why they did, SCOTUS spent much of the time at oral arguments in November asking Nvidia why such a fact-specific question merited SCOTUS review. Typically, SCOTUS does not take up cases for "error correction" (as Justice Sonia Sotomayor called the appeal during oral arguments). Justice Brett Kavanaugh perhaps revealed the intention behind hearing the case when he expressed concern that too low of a standard of evidence could lead to shareholder lawsuits getting by 12(b)(6) motions to dismiss under the PSLRA "any time the stock price falls."

Still, it was perhaps unsurprising that on December 11, 2024, SCOTUS dismissed the writ of certiorari as "improvidently granted" in a per curiam opinion. No further explanation was included.

The class-action suit against Nvidia will therefore proceed in district court.

Not Letting the Chips Fall Where They May

Nvidia vows to continue to fight the suit. In a somewhat ironic twist, their stock has gone from a low of under $3.25 at the end of 2018 to soar to a high of over $153 per share in 2024. Whether the courts will consider an investor's lack of patience as a viable defense remains to be seen.

Related Resources

• Proving Securities Fraud (FindLaw's Consumer Protection Law)
• Securities Fraud (FindLaw's Criminal Charges)
• United States Ninth Circuit Decisions (FindLaw's Case Law)