The US Securities and Exchange Commission (SEC) has fined Nvidia $5.5 million for failing to disclose how much cryptocurrency mining impacted its gaming GPU business.
The SEC holds (opens in new tab) that Nvidia failed to 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 from cryptocurrency mining on gaming GPU demand in its Form 10-Q filing, which the company is obliged to list risk factors to the business within, but failed to do so.
"Nvidia’s omissions of material information about the growth of its gaming business were misleading given that Nvidia did make statements about how other parts of the company’s business were driven by demand for crypto, creating the impression that the company’s gaming business was not significantly affected by cryptomining."
Nvidia has agreed to a cease-and-desist order and will pay the $5.5 million penalty. However, the California-based company has not admitted or denied the findings of the SEC.
Just a note that you'll see the SEC refer to Nvidia's fiscal year 2018 in the SEC filings (opens in new tab) [PDF warning], but that roughly correlates to human earth year 2017—Nvidia's financial calendar is weird. That's actually an important detail, as 2017/18 was the peak of the major cryptocurrency mining boom prior to the more recent one in 2020/21. Just like the previous 18 months, it was difficult to buy a graphics card during 2017 as the profitability of cryptocurrency mining, namely ethereum, was sky high.
It didn't end well for Nvidia, though. The company responded to the high demand for GPUs by making more of them—too many, in fact. By 2019, the company had admitted to excessive inventory of mid-range GPUs (opens in new tab) due to the previous years' cryptocurrency boom, and its share price went into a sharp decline for a short period.
Nvidia bounced back harder than ever over the next few years, however, quickly making the 2018 share price mountain (peaking around $70) look like a mole hill by comparison. During late 2021, the company's shares were valued at their highest yet, at $330. Today its shares are worth $190 a piece, though the effect of this SEC filing may cause a turbulent few days for the company.
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Strangely enough, Nvidia recently succeeded in having a class action lawsuit against it dismissed (opens in new tab) for similar claims of deception by its investors. In that lawsuit, it was claimed "economists determined that Nvidia had earned at least $1.728 billion from sales to miners from May 2017 through July 2018—meaning that Defendants understated Nvidia’s crypto-related GPU sales by $1.126 billion during the Class Period, all of which was contained in the Company’s Gaming segment."
The class action lawsuit claimed investors were unable to see the whole picture and prepare better for the volatility of Nvidia's revenue at the time, much like the charges made by the SEC. Yet this class action suit was unsuccessful; a California judge threw the case out.
The class action would've likely run Nvidia a lot more money than $5.5 million had it been successful, however.
Ultimately, a $5.5 million fine is merely a slap on the wrist for a company like Nvidia. The company made $26.91 billion in 2021, up a whopping 61% over the previous year. Though it does appear to have learned a lesson from the major cryptocurrency mining goldrush of 2017/18: it appeared to play it a lot safer with its response to the more recent boom of 2020/21, launching specially produced cryptocurrency cards and seemingly keeping inventory a little leaner, too.