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Lower court let suit led by Swedish firm proceed

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Nvidia ( NVDA ) accused of concealing the impact of cryptomining

By John Kruzel

WASHINGTON, Dec 11 (Reuters) - The U.S. Supreme Court

dismissed on Wednesday an appeal by artificial intelligence

chipmaker Nvidia ( NVDA ) seeking to avoid a securities fraud

lawsuit by shareholders who accused the company of misleading

investors about how much of its sales depended on the volatile

cryptocurrency market.

The justices, who heard arguments in the case on Nov. 13,

opted not to render a decision on the underlying legal dispute

and instead threw out Nvidia's ( NVDA ) appeal of a lower court's ruling

that allowed the 2018 class action to move forward. The lawsuit

is led by the Stockholm, Sweden-based investment management firm

E. Ohman J:or Fonder AB.

The Supreme Court, in determining that it should not have

granted the appeal, left the lower court's decision in place.

The Supreme Court's dismissal came in a one-line order that

provided no explanation.

During the arguments, some of the justices expressed

reservations about intervening in the case. They wondered about

whether there was a clear legal issue for them to decide, as

opposed to just a dispute over facts, and indicated that they

were not ideally placed to resolve the case given its technical

complexities.

At issue was whether the plaintiffs cleared the heightened

legal bar for bringing private securities fraud suits set under

a 1995 federal law called the Private Securities Litigation

Reform Act that aimed to screen out frivolous litigation.

The plaintiffs accused Nvidia ( NVDA ) and its CEO Jensen Huang of

violating a 1934 federal law called the Securities Exchange Act

by making statements in 2017 and 2018 that falsely downplayed

how much of Nvidia's ( NVDA ) revenue growth came from crypto-related

purchases.

Beginning in 2017, as the price of certain cryptocurrencies

rose, Nvidia's ( NVDA ) chips became increasingly popular for

cryptomining, a process that involves performing complex math

equations in order to secure cryptocurrencies such as bitcoin

and ether.

By late 2018, amid a decline in crypto profitability,

Nvidia's ( NVDA ) revenue fell short of its projections, leading its

stock price to fall in early November of that year.

The suit seeks unspecified monetary damages in part to

recoup the lost value of the Nvidia ( NVDA ) stock held by the investors.

Nvidia ( NVDA ) in 2022 agreed to pay $5.5 million to U.S.

authorities to settle charges that it did not properly disclose

the impact of cryptomining on its gaming business, but without

admitting or denying the findings of federal regulators.

A federal judge dismissed the shareholder lawsuit but the

San Francisco-based 9th U.S. Circuit Court of Appeals

subsequently revived it. The 9th Circuit found that the

plaintiffs had adequately alleged that Huang made "false or

misleading statements and did so knowingly or recklessly,"

allowing their case to proceed.

Deepak Gupta, who represented the shareholders before the

Supreme Court, called the dismissal "a win for corporate

accountability."

"The corporate Supreme Court bar, supported by the U.S.

Chamber (of Commerce) and its allies, often tries to gin up

nonexistent legal issues in an effort to curtail class actions,"

Gupta said. "We hope the court will think twice the next time a

corporation uses the same playbook."

An Nvidia ( NVDA ) spokesperson said the company is "fully prepared

to continue our defense."

"Consistent and predictable standards in securities

litigation are essential to protecting shareholders and ensuring

a strong economy, and we remain committed to supporting them,"

the spokesperson said.

Nvidia ( NVDA ) had argued to the Supreme Court that the plaintiffs

failed to adequately show that the disputed corporate statements

were false, or the company had intentionally or recklessly

misled investors, as required by law.

The plaintiffs countered that their lawsuit contained strong

enough allegations - gleaned from former employees, market

analysis and expert opinion - to survive Nvidia's ( NVDA ) request for

dismissal and proceed to the discovery stage of litigation.

President Joe Biden's administration supported the shareholders

in the case.

The Nvidia ( NVDA ) dispute was one of two cases to come before the

Supreme Court in November involving the right of private

litigants to hold companies to account for alleged securities

fraud. The other one, involving Meta's Facebook, was

argued on Nov. 6 and similarly dismissed by the justices on Nov.

22.