The U.S. Securities and Exchange Commission (SEC) has charged Nvidia Corp. (NVDA) – Get Report with failing to disclose the risks posed to its business by the cryptocurrency mining boom of 2018.
In a press release on Thursday, the SEC said that Nvidia “ misled investors” by not disclosing that it was experiencing “uneven” demand for its GPUs from cryptocurrency miners.
According to the SEC, Nvidia’s failure to disclose this information violated federal securities laws. The SEC has ordered Nvidia to pay a $1.8 million penalty and to cease and desist from future violations of disclosure rules.
Without admitting or denying the charges, Nvidia agreed to pay a $5.5 million dollar fine to settle the affair. The announced that Nvidia failed to disclose that crypto mining was a significant contributor to its 2018 revenue reports.
Nvidia’s GPUs are popular among cryptocurrency miners because they are powerful and efficient. In 2018, the demand for Nvidia’s GPUs from cryptocurrency miners was “uneven.” Nvidia did not disclose this information to investors, which led the SEC to charge the company with violating federal securities laws.
Two of Nvidia’s Form 10-Qs for fiscal 2018 showed revenue growth in its gaming business. However, Nvidia was aware – but failed to disclose to its investors – that the significant boost in sales was driven by crypto mining.
The SEC said that “The omission of material information about the growth of its gaming business was 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”.
The report also stated that “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.”
The SEC said Nvidia failed to disclose in its financial filings for the first three quarters of 2018 the demand for its graphics cards.
Nvidia responded to the SEC’s allegations, saying that it “is confident” that its disclosures were “accurate and complete.””We respectfully disagree with the SEC’s requests and intend to vigorously defend against these claims,” Nvidia said in a statement.
The $5.5 million penalty is 0.05% of the company’s 2018 declared revenue.