The U.S. Supreme Court on Wednesday delved into Nvidia’s bid to block a securities fraud lawsuit that accuses the artificial intelligence chipmaker of misleading investors about the extent of its reliance on the volatile cryptocurrency market. The case, which has drawn significant attention from the tech and legal communities, could have lasting implications for the future of private securities fraud suits.
At the heart of the case is a 2018 class action lawsuit filed by E. Öhman JFonder AB, a Swedish investment management firm, which claims Nvidia and its CEO, Jensen Huang, downplayed the significance of cryptocurrency-related sales in their financial reports. The plaintiffs allege that Nvidia’s public statements from 2017 to 2018 falsely minimized the impact of crypto-related sales, which were a significant driver of its revenue during the period of cryptocurrency market volatility.
The lawsuit accuses Nvidia of violating the Securities Exchange Act of 1934, which mandates that companies provide truthful and accurate information to investors. According to the plaintiffs, Nvidia’s statements misled investors by underestimating the impact of crypto mining demand for its graphics processing units (GPUs), which were widely used by cryptocurrency miners during the boom in virtual currencies like Bitcoin and Ether.
The central issue before the Court is whether the plaintiffs meet the heightened legal requirements under the Private Securities Litigation Reform Act of 1995, which was designed to screen out meritless fraud claims. Nvidia argues that the plaintiffs have not provided sufficient evidence to support their claims and should not be allowed to proceed with the lawsuit.
During oral arguments, some justices expressed hesitation about engaging with the case due to its complex technical nature. Justice Elena Kagan pointed out that the Court may not be the ideal forum to resolve disputes that hinge on technical facts and data, rather than broader legal principles. Similarly, Justice Ketanji Brown Jackson raised concerns that Nvidia’s proposed legal standard could place an undue burden on plaintiffs by requiring them to present detailed evidence too early in the litigation process, before discovery.
Conservative Justices, including Chief Justice John Roberts, sought a middle ground, questioning how to balance the need for sufficient evidence with the legal protections afforded to plaintiffs under the Private Securities Litigation Reform Act. Justice Roberts acknowledged that while plaintiffs should not be required to present all their evidence upfront, they should still meet certain legal thresholds to prevent frivolous lawsuits from proceeding.
The case also touches on broader questions about the accessibility of the courts for investors seeking redress for alleged corporate misconduct. Nvidia’s defense centers on the argument that the plaintiffs are relying heavily on expert opinions rather than solid evidence, which, according to Nvidia, does not meet the legal standards required to bring a securities fraud case.
The legal dispute traces back to the boom and bust cycle in the cryptocurrency market. As the value of cryptocurrencies surged in 2017, Nvidia’s GPUs became increasingly popular for mining digital currencies. However, as the market for crypto mining faltered in late 2018, Nvidia’s revenue projections fell short, causing the company’s stock to drop. The plaintiffs claim that Nvidia failed to adequately disclose the impact of crypto mining on its business and the risks associated with the volatile market.
While Nvidia agreed to settle charges with U.S. authorities in 2022 over similar allegations, agreeing to pay $5.5 million without admitting wrongdoing, the company now seeks to block the private lawsuit from moving forward.
This case is one of two major securities fraud cases under review by the Supreme Court this month, with another case involving Meta Platforms (formerly Facebook) also on the docket. Both cases have the potential to reshape how securities fraud litigation is handled in the U.S. and could make it more difficult for investors to hold companies accountable for alleged misleading statements.
The outcome of this case could set important precedents for the future of securities fraud litigation, particularly in cases involving complex and fast-changing markets like cryptocurrency. As the justices continue to deliberate, the legal community is closely watching how they will navigate the balance between protecting investor rights and preventing baseless lawsuits.
Read more: