Investors who purchased Nvidia stock in 2017 have watched their holdings skyrocket by more than 3,400%, yet a group of shareholders continues pursuing a securities fraud lawsuit against the technology company that has stretched on for nearly eight years.
The legal battle stems from a brief downturn in Nvidia’s stock value during the cryptocurrency market chaos of 2018. Now, the plaintiffs appear closer to a significant legal win as their case advances through the 9th U.S. Circuit Court of Appeals in San Francisco following a federal judge’s decision last month to approve class certification.
The California-based chipmaker has petitioned the appeals court to take the rare action of stepping in before lower court proceedings conclude. Nvidia seeks to have the 9th Circuit reverse U.S. District Judge Haywood Gilliam Jr.’s ruling that certified a group of investors claiming the company understated its reliance on unpredictable cryptocurrency mining revenues during 2017 and 2018.
Nvidia declined to provide a statement. However, the company’s legal representatives from Milbank and Cooley contend in legal filings that the 9th Circuit must urgently address what they describe as two persistently unclear legal issues within the circuit.
The attorneys argue that Gilliam incorrectly interpreted Supreme Court precedent when evaluating whether alleged false statements by company executives actually influenced Nvidia’s share price. Additionally, they claim the judge made an error by approving the class without demanding plaintiffs present a comprehensive damages calculation model – a position that has recently gained support in other federal circuits.
Major players in securities defense law have rallied behind Nvidia’s appeal, including the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association, and the National Association of Manufacturers.
According to Sullivan & Cromwell co-chair Robert Giuffra Jr., who submitted a supporting brief on behalf of seven former Securities and Exchange Commission officials and legal scholars backing Nvidia, the case involves what may be the two most frequently disputed matters during class certification in securities litigation.
Legal representatives for the plaintiffs from Kessler Topaz Meltzer and Bernstein Litowitz Berger and Grossmann have not responded to inquiries. In their court documents, they maintain the case meets all necessary criteria for class certification and resembles other recent securities lawsuits in the Northern District of California that received approval.
A group of Nvidia stockholders spearheaded by Stockholm-based investment firm E. Ohman J:or Fonder AB initiated the lawsuit in December 2018 following the company’s failure to meet revenue expectations.
Judge Gilliam threw out the case in 2021, but the 9th Circuit later reinstated it, determining that plaintiffs had sufficiently demonstrated that Nvidia and CEO Jensen Huang made statements that were misleading or false, doing so either intentionally or with reckless disregard for the truth.
The Supreme Court accepted the case for review in 2024 but ultimately dismissed it after oral arguments, determining it had been inappropriately granted. The matter then returned to Judge Gilliam’s court.
In his comprehensive 50-page ruling on March 25 approving class certification, Gilliam examined statements made by Nvidia and Huang to investors during 2017 and 2018 regarding the company’s cryptocurrency operations. Huang had stated that cryptocurrency was a minor part of their business, saying the company’s primary focus lay in other areas.
The plaintiffs contend these reassurances concealed reality – that cryptocurrency generated more revenue for Nvidia than the company disclosed. Starting in 2017, as certain cryptocurrency values climbed, Nvidia’s processors became highly sought after for crypto mining, which requires solving intricate mathematical problems to validate cryptocurrency transactions. However, when crypto values dropped, chip demand declined accordingly.
The consequences became apparent in November 2018 when Nvidia announced it had fallen short of its third-quarter revenue goals by 2% due to what it termed a dramatic cryptocurrency decline. The company’s stock value dropped 28.5% across two trading days.
For a securities fraud claim to succeed, plaintiffs must demonstrate they depended on false statements and, importantly, that these alleged misstatements affected stock prices. The challenge lies in establishing whether Nvidia’s earlier general remarks about cryptocurrency actually artificially boosted its stock value.
Nvidia maintains that its November disclosures did not rectify any previous misrepresentations. Referencing the Supreme Court’s 2021 Goldman Sachs Group Inc. v. Arkansas Teacher Retirement System ruling, the company argues there was a crucial disconnect between earlier broad statements minimizing cryptocurrency’s significance and subsequent specific disclosures about quarterly revenue.
While recognizing some disconnect existed, Gilliam remained unconvinced that the initial comments had no market impact. He referenced analyst observations, who found the November revelations contradicted Nvidia’s previous assurances downplaying cryptocurrency exposure.
Gilliam also dismissed Nvidia’s objections to the plaintiffs’ damages calculation approach. The judge determined that the plaintiffs’ expert had suggested a workable methodology for calculating class-wide damages, even though specifics would be developed later – a conclusion Nvidia claims conflicts with the Supreme Court’s 2013 Comcast Corp. v. Behrend decision.
Comparable disputes are emerging in other jurisdictions. The 4th U.S. Circuit Court of Appeals is considering the issue in a securities fraud case involving Boeing, while the 6th Circuit last year revoked class certification in a lawsuit against Ohio utility FirstEnergy partly due to problems with the plaintiffs’ damages model.
Either the price-impact question or the damages issue could provide sufficient grounds for the 9th Circuit to consider Nvidia’s appeal – potentially offering the company a crucial opportunity.
During an April 21 status hearing before Judge Gilliam, Nvidia’s attorneys provided little indication about whether the company would be willing to proceed to trial if class certification stands.
Meanwhile, Gilliam directed both parties to provide their best projections for trial duration.
The judge noted that while both sides claim it’s too early to estimate trial length, such planning is necessary for court scheduling purposes.
