NVIDIA Corporation (NASDAQ: NVDA) has agreed to pay $5.5 million to settle SEC charges related to the company’s inadequate disclosures about the impact that its graphics processing units (GPUs) were having on cryptocurrency mining. With cryptocurrency becoming more and more mainstream, it can have an impact on regulations for major companies. NVIDIA was able to capitalize on the days of the cryptocurrency mining boom. However, according to the SEC, the company failed to disclose certain aspects of the impact of crypto mining on NVIDIA’s business and top-line growth.
SEC Charges NVIDIA Corporation (NASDAQ:NVDA) With Inadequate Disclosures
On May 6, 2022, the Securities and Exchange Commission today announced that it had settled charges against technology company NVIDIA Corporation for insufficient disclosures about the impact of crypto mining on the company’s gaming business.
The Securities and Exchange Commission found that, for consecutive quarters in NVIDIA’s fiscal year 2018, the company did not disclose that the significant revenue generated from the sale of GPUs designed and marketed for gaming was mainly generated by cryptocurrency mining.
Cryptomining is the process of getting rewards in the form of crypto tokens in exchange for confirming transactions on decentralized ledgers. When demand for and interest in cryptocurrencies skyrocketed in 2017, NVIDIA customers increasingly used their gaming GPUs for cryptocurrency mining.
The SEC’s order said that the company misled investors by acknowledging that crypto demand affected other aspects of its business but implied that mining wasn’t a significant part of the gaming business’ success. This may not have been the case for other products. NVIDIA will have to avoid future rule-breaking after the lawsuit that the Securities and Exchange Commission is involved in.
The Specifics of the SEC Charges Brought Against NVIDIA
One of the two reports for the 2018 fiscal year from NVIDIA is that gaming revenue is going up, and the explanation given for the sudden spike in cryptocurrency mining. However, NVIDIA failed to disclose in its Forms 10-Q, as it was required to do, the substantial earnings and cash flow variations related to a volatile business, thereby precluding investors from ascertaining the likelihood that past performance is indicative of future performance.
The SEC’s order also finds that NVIDIA’s misleading statements about its crypto mining-related performance were troubling, given that NVIDIA made statements about other aspects of its business driven by crypto. The impression it gave was that its gaming performance was not significantly affected by crypto mining.
The SEC’s Notes
According to Kristina Littman, Chief of the SEC Enforcement Division’s Crypto Assets and Cyber Unit, “NVIDIA’s disclosure failures deprived investors of critical information to evaluate the company’s business in a key market.” Littman added, “All issuers, including those that pursue opportunities involving emerging technology, must ensure that their disclosures are timely, complete, and accurate.”
The SEC found that NVIDIA violated sections 17(a)(2) and (3) of the Securities Act of 1933 and the disclosure provisions of the Securities Exchange Act of 1934. NVIDIA also failed to maintain adequate disclosure controls and procedures. Without admitting or denying the findings of the SEC, NVIDIA has agreed to a cease-and-desist order and has agreed to pay a $5.5 million penalty.
The SEC investigation was conducted by Brent Wilner and supervised by Diana Tani and Amy Littman of the Crypto Assets and Cyber Unit.