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Nvidia to pay u$s 5.5 million fine for failing to disclose how many GPUs were earmarked for cryptocurrency in 2017
The U.S. Securities and Exchange Commission (SEC) announced a settlement with Nvidia and the fine the company will have to pay for refusing to disclose the impact of cryptocurrencies on GPU sales for throughout 2017. As many will recall, 2017 was a huge cryptocurrency mining boom, with millions of GPUs sold by both Nvidia and AMD.
According to the release, Nvidia will pay $5.5 million to settle charges that it illegally obscured how many of its graphics cards were sold to cryptocurrency miners. The document claims that Nvidia misled investors by reporting a large increase in gaming-related revenue while concealing how many GPUs were destined for the cryptocurrency market. Nvidia does not admit wrongdoing as part of the settlement, but agrees to stop any illegal failures to disclose information.
The charges stem from Nvidia's fiscal year 2018 financial reports. The SEC notes that Nvidia saw a big spike in cryptocurrency-related sales in 2017, when Ethereum mining rewards grew dramatically. It was reported in detail that cryptomining was one of the causes of GPU shortages, and Nvidia launched a separate CMP line specifically for mining, trying to avoid shortages for gamers. But employees apparently recognized that many gaming GPUs were still going to miners. "Company sales personnel, particularly in China, reported what they believed to be significant increases in demand for gaming GPUs as a result of cryptocurrency mining" as quoted in the SEC filing.
Given the nature of the cryptocurrency boom and subsequent bust at the time, this meant that Nvidia's sales figures did not necessarily indicate reliable future growth, making investing in it riskier. "Nvidia analysts and investors were interested in understanding the extent to which the company's gaming GPU revenue was impacted by cryptocurrency and routinely asked senior management about the extent to which increases in gaming revenue during this time period were driven by cryptocurrency," the SEC alleges.
Despite this, Nvidia did not mention mining-related sales as a factor in its gaming division's success. Meanwhile, it mentioned cryptocurrencies as a major factor in other markets, suggesting to the SEC that it was being deliberately misleading. And investors' concerns turned out to be well-founded. The crypto crash in late 2018 (along with a weakening Chinese market) led it to cut its quarterly earnings projections by u$s 500 million and prompted a shareholder lawsuit.
"NVIDIA's disclosure failures deprived investors of critical information to evaluate the company's business in a key market," says Kristina Littman, director of the SEC's Cryptoasset and Cyber Unit. "All issuing companies, including those seeking opportunities involving emerging technology, must ensure that their disclosures are timely, complete and accurate."