NVIDIA Fined $5.5 Million Fine As it did not Disclose 2018 Crypto Revenue

NVIDIA has reached an agreement with the SEC to pay 5.5 million dollars (5.2 million euros). According to the regulator, NVIDIA failed to properly tell its shareholders about the impact of cryptocurrency mining on the sales figures of its gaming processors.

According to the SEC, NVIDIA should have informed shareholders that the burgeoning crypto mining sector was affecting sales of their graphics chips. When mining cryptocurrencies, computer systems solve mathematical algorithms to verify transactions such as bitcoin.

The SEC’s order finds that, during consecutive quarters in NVIDIA’s fiscal year 2018, the company failed to disclose that cryptomining was a significant element of its material revenue growth from the sale of its graphics processing units (GPUs) designed and marketed for gaming.

Cryptomining is the process of obtaining crypto rewards in exchange for verifying crypto transactions on distributed ledgers. As demand for and interest in crypto rose in 2017, NVIDIA customers increasingly used its gaming GPUs for cryptomining.

In two of its Forms 10-Q for its fiscal year 2018, NVIDIA reported material growth in revenue within its gaming business. NVIDIA had information, however, that this increase in gaming sales was driven in significant part by cryptomining. Despite this, NVIDIA did not disclose in its Forms 10-Q, as it was required to do, these significant earnings and cash flow fluctuations related to a volatile business for investors to ascertain the likelihood that past performance was indicative of future performance. The SEC’s order also finds that NVIDIA’s omissions of material information about the growth of its gaming business were misleading given that NVIDIA did make statements about how other parts of the company’s business were driven by demand for crypto, creating the impression that the company’s gaming business was not significantly affected by cryptomining.

“NVIDIA’s disclosure failures deprived investors of critical information to evaluate the company’s business in a key market,” said Kristina Littman, Chief of the SEC Enforcement Division’s Crypto Assets and Cyber Unit. “All issuers, including those that pursue opportunities involving emerging technology, must ensure that their disclosures are timely, complete, and accurate.”

The SEC’s order finds that NVIDIA violated Section 17(a)(2) and (3) of the Securities Act of 1933 and the disclosure provisions of the Securities Exchange Act of 1934. The order also finds that NVIDIA failed to maintain adequate disclosure controls and procedures. Without admitting or denying the SEC’s findings, NVIDIA agreed to a cease-and-desist order and to pay a $5.5 million penalty.

The SEC’s investigation was conducted by Brent Wilner of the Crypto Assets and Cyber Unit, and supervised by Diana Tani and Ms. Littman of the Crypto Assets and Cyber Unit.

Venix
Senior Member

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Joined: 2016-08-01

#6015744 Posted on: 05/09/2022 03:32 PM

Still don't get why Nvidia are being fined for this.

From what I understand they are being asked to guess what their product is being used for so investors can make a slightly more educated gamble?

So you invest in a cookie making company that makes a killing at the time because there are girl scout Olympics and their down time go from door to door selling cookies, when you ask the cookie company where all the sales come from they tell you is normal the people in the town buying the cookies like that always !... That will affect your decision to invest even more or keep your share ....by the law you are not allowed to lie to your investors.... Period !

Denial
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Posts: 14010
Joined: 2004-05-16

#6015745 Posted on: 05/09/2022 03:40 PM

Still don't get why Nvidia are being fined for this.

From what I understand they are being asked to guess what their product is being used for so investors can make a slightly more educated gamble?

If you read the full SEC report Nvidia knew that a larger chunk of it's sales were going to crypto then they were reporting. So it wasn't about Nvidia just guessing wrong, but they were intentionally misreporting it... whether it was maliciously or just incompetence who knows. Since that incident Nvidia has taken measures to work with it's vendor channels to improve reporting and presumably are doing their best to get accurate numbers to investors. So even though their estimates might still be off, they are at least attempting to distinguish sales channels, which is probably why the fine isn't bigger.

Yogi
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Posts: 319
Joined: 2015-06-25

#6015766 Posted on: 05/09/2022 06:14 PM

If you read the full SEC report Nvidia knew that a larger chunk of it's sales were going to crypto then they were reporting. So it wasn't about Nvidia just guessing wrong, but they were intentionally misreporting it... whether it was maliciously or just incompetence who knows. Since that incident Nvidia has taken measures to work with it's vendor channels to improve reporting and presumably are doing their best to get accurate numbers to investors. So even though their estimates might still be off, they are at least attempting to distinguish sales channels, which is probably why the fine isn't bigger.

#6015774 Posted on: 05/09/2022 06:45 PM

I read the article, unlike many posters it seems and the report. I still don't get why Nvidia has to report to investors that their "Gaming" products which were sold as pc gaming skus are being used for something other than gaming. Especially when they had dedicated cryptomining skus at the time.

Shouldn't they also report that a not insignificant percentage of their Gaming products are used instead of Professional products for engineering tasks as an example. My laptop's 2080 spends more time drawing and rotating squares in CAD or displaying my inbox than it ever has playing any game.

They have to report it because it's misleading to investors if Nvidia gaming sales double/triple/whatever and a huge chunk of that is not gaming, it's mining -- which is short term and Nvidia knows it's mining, which is the crux of the issue here (that nvidia knew internally that these cards were being used for mining but didn't disclose it). This is because investors think "oh gaming is doing really good and is much bigger than we previously thought, let's invest on this sector that's relatively stable and showing growth" when it could have been "well a huge chunk of these sales are being used for mining, and that's very volatile and could randomly go belly up, let's not invest" had Nvidia disclosed it.

CMP wasn't released at the time. I know they had weird specific cards throughout 2018 they released, P106's for example with no displays but idk if that was from Nvidia or partners just trying to cash in but this was from 2017-2018. There's also been articles released about this lawsuit that claims Nvidia has done a better job of tracking these sales through partners themselves.. which makes me think they didn't have a good grasp on it in 2017 anyway.

I think the number of people doing professional work on gaming cards is miniscule compared to the sales to miners during these mining booms - also it's a pretty consistent number... it's not like from one generation to a next the number of people using gaming cards to do professional work suddenly doubles or triple sales.