NVIDIA Fined $5.5M for Inadequate Disclosures About Impact of Cryptomining on Positive Earning Reports

Before the weekend, the Securities and Exchange Commission (SEC) settled charges with NVIDIA Corporation over its failure to disclose critical information concerning the boost cryptomining had on its gaming business. According to the agency’s press release, the multinational technology company headquartered in Santa Clara, Calif., did not admit fault but agreed to a cease-and-desist order and to pay a $5.5 million penalty.

The SEC specifies that “[c]ryptomining is the process of obtaining crypto rewards in exchange for verifying crypto transactions on distributed ledgers.” Reportedly, as interest in crypto began to rise in the last five years, NVIDIA customers increasingly used its graphics processing units (GPUs), which are designed and marketed for gaming, for cryptomining.

In SEC official filings for fiscal year 2018, the company reported gaming business growth, but did not disclose that the gains were driven by cryptomining, purportedly giving the false impression that the company’s business was not significantly impacted by the emerging practice. Allegedly, this was a significant omission because the earnings and cash flow fluctuations were connected to “a volatile business” that investors need to know about in order to make forward-looking performance forecasts.

The SEC found that NVIDIA lapsed with regard to federal securities law disclosure provisions and failed to maintain disclosure oversight procedures. The SEC’s investigation was conducted by its Crypto Assets and Cyber Unit, which recently underwent an expansion.

Notably, a private securities fraud lawsuit regarding the same disclosure issues was dismissed last March for, among other reasons, failure to plead scienter.