NVIDIA is confronting a securities fraud class action lawsuit that has persisted for nearly eight years, despite investors who purchased the stock during the relevant period subsequently realizing returns exceeding 3400%. As the case approaches a critical procedural stage, its outcome is poised to exert a profound influence on the rules governing securities class actions in the United States.
Last month, U.S. Federal Judge Haywood Gilliam Jr. ruled to grant class certification to the plaintiffs, a decision considered a pivotal moment in securities fraud litigation. NVIDIA promptly petitioned the Ninth Circuit Court of Appeals for intervention, seeking to overturn this ruling before proceedings conclude in the lower court. Concurrently, Judge Gilliam has requested both parties to submit estimates for the trial's duration, signaling the case's progression toward a formal trial.
The core dispute centers on whether NVIDIA and its CEO, Jensen Huang, deliberately downplayed the company's reliance on revenue from cryptocurrency mining during 2017 and 2018, thereby misleading investors. In November 2018, NVIDIA disclosed that its third-quarter revenue fell short of expectations, triggering a 28.5% plunge in its stock price over two trading days and subsequently sparking the lawsuit.
The lawsuit originated from a stock collapse ignited by the "crypto winter." The case was initiated in December 2018 by asset management firm E. Ohman J:or Fonder AB, headquartered in Stockholm, Sweden.
The plaintiffs allege that beginning in 2017, rising cryptocurrency prices led to a surge in demand for NVIDIA chips, which were heavily used for crypto mining. However, the company's management intentionally minimized this dependency in communications with investors. Huang had publicly stated that "crypto for us is small" and "our core business is elsewhere."
In November 2018, when the cryptocurrency market cooled sharply, NVIDIA announced that third-quarter revenue missed expectations by approximately 2% due to a "sharp drop in crypto demand," causing the stock to plummet 28.5% over two sessions. The plaintiffs contend that management's prior statements obscured the true impact of the crypto business on company revenue, constituting securities fraud.
The case has seen numerous twists, with class certification becoming a critical turning point. Judge Gilliam dismissed the case in 2021, but the Ninth Circuit Court of Appeals later reversed that decision, ruling that the plaintiffs had adequately alleged that NVIDIA and Huang "made false or misleading statements, and did so knowingly or recklessly."
The U.S. Supreme Court agreed to hear the case in 2024 but subsequently dismissed the writ of certiorari as "improvidently granted" after oral arguments, remanding the case back to Judge Gilliam.
On March 25 of this year, Gilliam issued a 50-page ruling granting class certification. He found a contradiction between NVIDIA's November disclosure and management's earlier statements about the crypto business, noting that analyst reactions corroborated this—several analysts remarked afterwards that the November disclosure contradicted the company's prior assurances downplaying crypto exposure.
NVIDIA's appeal focuses on two key legal disputes. In its appeal, NVIDIA put forward two core legal arguments, garnering support from influential organizations such as the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association (SIFMA), and the National Association of Manufacturers through amicus curiae briefs.
First, citing precedent from the U.S. Supreme Court's 2021 decision in Goldman Sachs Group Inc. v. Arkansas Teacher Retirement System, NVIDIA argues there is a fundamental "mismatch" between management's earlier, generalized statements about the crypto business and the specific revenue disclosure in November. Therefore, the former does not constitute a "correction" of the latter and should not be considered a price-impacting misstatement.
Second, referencing the Supreme Court's 2013 decision in Comcast Corp. v. Behrend, NVIDIA contends that Judge Gilliam committed legal error by approving class certification without requiring the plaintiffs to submit a detailed damages calculation model.
Robert Giuffra Jr., co-chair of Sullivan & Cromwell, submitted an amicus brief on behalf of seven former U.S. Securities and Exchange Commission officials and law professors, stating that the case involves "two of the most contested issues in class certification in securities cases."
The ruling's impact may extend beyond NVIDIA itself. The resolution of these two legal disputes is expected to have broad implications for the landscape of securities class actions in the U.S.
Regarding the damages model issue, similar controversies are simmering concurrently in multiple jurisdictions. The Fourth Circuit Court of Appeals is currently reviewing the same question in a securities fraud case against Boeing; last year, the Sixth Circuit Court of Appeals vacated class certification against Ohio utility FirstEnergy partly due to deficiencies in the plaintiffs' damages model.
Attorneys for the plaintiffs, from firms Kessler Topaz Meltzer and Bernstein Litowitz Berger and Grossmann, argue in court filings that the case meets all requirements for class certification and is no different from other recently certified securities cases in the Northern District of California.
NVIDIA has not yet responded to the Ninth Circuit's review. Its external legal team is from Milbank and Cooley. During an April 21 pretrial conference, NVIDIA's lawyers revealed little about whether the company would be willing to proceed to a jury trial if the class certification is upheld. Judge Gilliam indicated he needs to schedule the trial and has requested both sides to submit their best estimates for its length.
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