Nvidia, the world’s leading AI chip manufacturer, faced intense scrutiny from the US Supreme Court on Wednesday as justices heard arguments in a securities fraud case that could have far-reaching implications for corporate liability. The case centers on a 2018 class action lawsuit led by a Swedish investment management firm, alleging that Nvidia and CEO Jensen Huang misled investors about the company’s cryptocurrency mining-related GPU sales.
The legal battle revolves around whether the plaintiffs met the stringent pleading standards required by the 1995 Private Securities Litigation Reform Act (PSLRA), which was designed to prevent frivolous securities lawsuits. Nvidia’s attorney, Neal Katyal, argued that the Ninth Circuit’s decision to allow the lawsuit to proceed “creates an easy road map for plaintiffs to evade the Reform Act.” He contended that the complaint relies too heavily on expert opinion without sufficient company documents, essentially allowing plaintiffs to “find an expert with numbers that contradict the company’s public statements.”
However, several justices expressed skepticism about Nvidia’s position. Justice Ketanji Brown Jackson voiced concern that Nvidia appeared to be “requiring for plaintiffs to actually have the evidence in order to plead their case,” noting that the company seemed to want “a bright line that says the contents of the documents are necessary.” Justice Sonia Sotomayor stated she was “concerned” by Nvidia’s petition, while Chief Justice John Roberts suggested both sides’ arguments were “a little black and white” and questioned where the appropriate balance lies.
The plaintiffs’ attorney, Deepak Gupta, argued that the case rests on substantial evidence, including accounts from former employees, detailed internal data and meetings, expert analysis, and “Huang’s eventual acknowledgment of the crypto hangover, which sent the stock tumbling 28%.” According to the lawsuit, Nvidia knew in 2017 that record GPU sales were substantially driven by cryptocurrency miners, but Huang denied this for over a year because “the securities market looked askew at GPU sales to miners, which are notoriously cyclical.”
The case gained additional weight after Nvidia agreed to pay the SEC $5.5 million in 2022 to settle charges for “inadequate disclosures” regarding crypto mining’s impact on its gaming business, though without admitting wrongdoing. A Supreme Court decision is expected by June 2025, with significant implications for how companies must disclose revenue sources and what evidence shareholders need to pursue fraud claims.
Key Quotes
I guess my concern is that you appear to be requiring for plaintiffs to actually have the evidence in order to plead their case
Justice Ketanji Brown Jackson expressed this concern to Nvidia’s attorney, highlighting the potential impossibility of shareholders obtaining internal company documents before filing a lawsuit. This statement suggests the Court may be skeptical of Nvidia’s strict interpretation of pleading requirements.
If I think that the positions on both sides are a little too absolute, how do you find sort of the sweet spot in terms of when the PSLRA is satisfied?
Chief Justice John Roberts posed this question, indicating the Court is searching for a balanced approach between protecting companies from frivolous lawsuits and allowing legitimate shareholder claims to proceed. His comment suggests the final ruling may establish nuanced standards rather than adopting either side’s absolute position.
Huang’s eventual acknowledgment of the crypto hangover, which sent the stock tumbling 28%
Plaintiffs’ attorney Deepak Gupta cited this dramatic stock drop as evidence that Nvidia had been concealing material information about cryptocurrency’s role in its revenue. This substantial market reaction underscores the financial stakes and suggests investors were indeed misled about the company’s revenue composition.
We brought this case to the Supreme Court to protect shareholders and the economy from groundless lawsuits
An Nvidia spokesperson provided this statement to Business Insider, framing the company’s position as protecting the broader economic system from frivolous litigation. The irony is that Nvidia is defending itself against shareholders while claiming to protect shareholder interests.
Our Take
This case represents a pivotal moment for corporate accountability in the AI boom. Nvidia’s argument essentially asks the Supreme Court to make it nearly impossible for shareholders to sue without already possessing internal documents—a catch-22 that would significantly shield corporations from fraud claims. The justices’ skepticism, particularly from Jackson and Roberts, suggests they recognize this paradox. What’s particularly striking is the timing: Nvidia has become synonymous with the AI revolution, and this case from the cryptocurrency era serves as a reminder that even industry darlings must maintain transparent investor relations. The $5.5 million SEC settlement adds credibility to plaintiffs’ claims that Nvidia did obscure crypto’s revenue impact. The Supreme Court’s decision will likely establish a middle ground that requires more than speculation but less than smoking-gun evidence, potentially reshaping how AI companies navigate disclosure requirements as they balance multiple revenue streams across gaming, data centers, autonomous vehicles, and emerging AI applications. This precedent will echo through Silicon Valley for years.
Why This Matters
This Supreme Court case carries enormous significance for Nvidia and the broader AI industry at a critical juncture. As the dominant force in AI chip manufacturing, Nvidia’s market valuation has soared past $3 trillion, making it one of the world’s most valuable companies. The outcome will establish crucial precedents for corporate disclosure requirements and shareholder litigation standards that will affect all publicly traded AI companies.
The case highlights the challenges AI companies face in transparent financial reporting, particularly when revenue streams span multiple volatile markets like gaming, cryptocurrency, and artificial intelligence. For an industry experiencing explosive growth and intense investor scrutiny, the decision will determine how much evidence shareholders need to pursue fraud claims and what level of detail companies must provide about their revenue sources.
Beyond Nvidia, this ruling could impact how AI companies communicate with investors about emerging revenue opportunities, especially in rapidly evolving markets. With AI companies increasingly diversifying their product lines and customer bases, the standards set here will shape corporate governance practices across the technology sector. The decision may either embolden shareholder activism or provide companies with stronger protections against litigation, fundamentally affecting the relationship between AI firms and their investors during this transformative period in the industry’s development.
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Source: https://www.businessinsider.com/nvidias-scotus-argument-skepticism-supreme-court-justices-2024-11