The U.S. Supreme Court has decided to review a case involving technology company Nvidia Corp.’s crypto mining revenue, which could have a significant impact on shareholder lawsuits. According to According to Bloomberg, Nvidia is seeking to dismiss a lawsuit from an investor claiming the company was “misleading” about its reliance on revenue from cryptocurrency mining before the 2018 market downturn.
The court’s decision will determine whether the lawsuit lacks specificity. If the ruling favors Nvidia, it could give companies greater firing power shareholder lawsuits from the start, thus avoiding costly litigation.
Nvidia CEO accused of hiding cryptocurrency mining profits
Shareholders in the current Nvidia case claim that the company’s CEO, Jensen Huang, hid that record revenue growth in 2017 and 2018 was primarily due to crypto-mining-related sales of the flagship GeForce. GPU Product rather than game sales.
Shareholders say crypto market volatility exposes Nvidia to more risk than expected. In November 2018, Nvidia announced a shortfall, causing its stock to drop more than 28% over two days. Huang attributed the decline to a “crypto hangover.”
Investors further claim that analysts quickly recognized an alleged “discrepancy” between Nvidia’s prior statements, which downplayed the importance of demand linked to the mining sectorand the reality of the situation.
They argue that internal communications involving Nvidia’s CEO would reveal the true scale of GPU sales to cryptocurrency miners, but Nvidia says no such evidence has been presented.
The company appeals to the Supreme Court
The 9th U.S. Circuit Court of Appeals in San Francisco ruled that the shareholders’ lawsuit could proceed, disagreeing with Nvidia’s argument for dismissal.
However, Nvidia appeals the decisionhighlighting the absence of internal company documents justifying the claim that officials were aware of having made “misleading statements”.
Suppose the Supreme Court sides with the tech company and raises the bar for shareholder lawsuits. In this case, companies may find it easier to obtain early dismissal of these cases, saving them the substantial costs of mounting a large-scale defense.
This result could reshape the dynamics of dispute between shareholderswhich impacts the level of accountability required of companies regarding their public statements and disclosures.
At the time of writing, the total crypto market valuation stands at $2.3 trillion, down from its mid-March peak of $2.7 trillion. Despite the expectation of significant catalysts that could restart the previous upward trend in prices of major cryptocurrencies, these catalysts have not yet materialized.
For example, Bitcoin (BTC) has been trading between $56,000 and $71,000 over the past two months. Currently, it is valued at $65,000, following a failed attempt to retest its all-time high of $73,700.
Featured image of DALL-E, chart by TradingView.com
