Supreme Court allows investor class actions to file suit against microchip company Nvidia

WASHINGTON – The supreme court allows for a class action that accuses Nvidia to mislead investors about its past reliance on selling computer chips to keep mining the volatile cryptocurrency going.

Wednesday’s court decision comes the same week China said it was investigating microchip company for alleged violations of China’s antitrust laws. The justices heard arguments four weeks ago in Nvidia’s attempt to shut down the lawsuit, then ruled they were wrong to take up the case in the first place. They rejected the company’s appeal, upholding an appeal ruling that allowed the case to continue.

At issue was a 2018 lawsuit led by a Swedish investment management firm. A decline in the cryptocurrency’s profitability followed, causing Nvidia’s revenue to fall short of forecasts and leading to a 28% drop in the company’s share price.

Nvidia argued that the investors’ lawsuit should be dismissed because it does not comply with a 1995 law, the Private Securities Litigation Reform Act, which is intended to prohibit frivolous complaints. A district court judge dismissed the complaint before a federal appeals court in San Francisco ruled it could go forward. The Biden administration backed the investors at the Supreme Court.

“This is a win for corporate responsibility. When corporations mislead shareholders, they undermine confidence in our markets. Ensuring that investors can seek justice is critical to preserving fairness and transparency,” Deepak Gupta, who represented investors at the Supreme Court, said in a statement.

In 2022, Nvidia, which is based in Santa Clara, California, paid a $5.5 million fine to settle charges by Securities and Exchange Commission that it failed to disclose that cryptomining was a significant source of revenue growth from the sale of graphics processing units that were produced and marketed for gaming. The company did not admit any wrongdoing in the settlement.

Nvidia’s recent performance has been spectacular. Even after news of the China investigation, its share price has risen 180% this year.

Nvidia has led the artificial intelligence sector to become one of the biggest companies on the stock market as the tech giants continue to spend heavily on the company’s chips and data centers needed to train and operate their AI systems.

The lawsuit is one of two high court cases involving class action lawsuits against technology companies. The judges also rejected an appeal by parent Facebook Meta which sought to end a multibillion-dollar investor class action lawsuit stemming from the privacy scandal involving Cambridge Analytica political consulting firm.