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Friday, December 8, 2023 | Back issues
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NVIDIA Dodges Fraud Claims by Shareholders

(CN) - A federal judge dismissed a class action alleging NVIDIA committed securities fraud by propping up share prices through false and misleading statements that concealed problems with its computer chips.

The lead plaintiff claimed in the action that NVIDIA's customers, including HP and Dell, complained that there were problems with its computer chips.

Almost 80 percent of NVIDIA's revenue comes from its graphics-processing units and media and communications processors, and the plaintiffs said a "mismatch in thermal properties" caused the alleged problems.

As a result of the computer failures, NVIDIA's stock prices dropped 31 percent in 2008, from $18.78 to $12.98 per share, which led to the securities fraud action.

U.S. District Judge Richard Seeborg said Wednesday that shareholders could not prove that NVIDIA took "extraordinary, secret steps" for at least 11 months before telling investors about the problem.

The company's switch to high-lead solder in products suggests that it knew its materials contributed to the defects, but that response "does not create or contribute to a strong inference that NVIDIA knew the scope of its potential financial liability at the time it was redesigning the chips and hoped to hide that fact," the judge found.

"While NVIDIA omitted discussion of the alleged defect from its public statements until the May 2008 quarterly report, a more reasonable, competing inference is that the company was investigating the scope of the issue," Seeborg wrote.

NVIDIA might have underappreciated the likelihood of "incurring extraordinary financial liability," despite the possibly misleading nature of the partial disclosure, the judge found.

"Such behavior, at worst, reflects recklessness in the ordinary sense of the word with respect to customer relations and potential financial risk," the 17-page decision states.

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