The US Securities and Exchange Commission recently fined Nvidia $5.5 million for failing to disclose to investors how much of its 2017-18 income came from crypto-miners.
This 5.5 million dollar settlement was reached with the SEC over “Inadequate Disclosures About the Impact of Cryptomining.” This particular case dates back to 2017, when the world-ending antics of crypto-diggers made it extremely difficult for everyone else to get a new graphics card, before the exact same people and a global chip scarcity made it even more difficult.
According to the SEC investigation, “for consecutive quarters of Nvidia’s fiscal year 2018, the company failed to disclose that crypto-mining constituted a significant component of its material revenue growth from the sale of its graphics processing units (GPUs) developed and marketed for gaming.”
The SEC’s report states, “during consecutive quarters in Nvidia’s fiscal year 2018, the company failed to disclose that crypto-mining was a significant element of its material revenue growth from the sale of its graphics processing units (GPUs) designed and marketed from gaming.”
That instance, when Nvidia’s profits began to rise that year, it did not properly inform its investors of the reason. When Nvidia identified the massive mining business, it created a line of “Cryptocurrency Mining Processor” (CMP) GPUs marketed particularly at crypto bros, but according to the SEC, its own employees were aware that increased gaming GPU sales were also tied to crypto.
According to the report, “Some of the company’s sales personnel, in particular in China, reported what they believed to be significant increases in demand for Gaming GPUs as a result of crypto-mining. In addition, while the company could not track when and which specific Gaming GPUs were purchased for the purpose of crypto-mining, company personnel estimated using various assumptions that the impact of crypto-mining was at levels that would indicate crypto-mining was a significant factor in the year-over-year growth in Gaming revenue during the relevant period.”
According to the SEC, Nvidia was supposed to report this distinction on the very Brazilian-sounding Forms 10-Q, but did not do so despite having the information on hand. Because of the volatility surrounding crypto currencies, the SEC believes Nvidia failed to provide investors with a complete picture of why numbers were rising. This made it more difficult for investors to “ascertain the likelihood that past performance was indicative of future performance.”
According to the SEC’s accompanying press release, “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 crypto-mining.”
According to SEC Enforcement Division chief Kristina Littman, this evidently meant that investors were “deprived” of “essential information to evaluate the company’s business in an important market.”
Despite the fact that said investors “routinely” questioned Nvidia senior management about “the extent to which growth in Gaming revenue during this time frame were influenced by crypto-mining,” By the end of the fiscal year 2018, it appears that Nvidia had begun to recognize both the role of cryptocurrency and its volatility, but in the meantime had “offered and sold securities, including issuing shares as compensation to certain employees under the company’s employee incentive plans and selling shares under its employee stock purchase plan.”
Nvidia refused to confirm or reject the findings, instead agreeing to a cease-and-desist order and a $5.5 million fine. You know, the way you do when you’re definitely not admitting to doing something wrong.