Nvidia misled investors about impact of crypto mining on its business, SEC says

By Brian Fung, CNN

For years, video gamers have blamed the shortage of PC graphics cards on cryptocurrency enthusiasts, who have scooped up an increasing number of devices to generate digital coins. The pandemic, along with the Trump administration’s tariffs on Chinese imports, have only worsened the situation, driving retail and secondary market prices soaring.

Now, US securities regulators say graphics card giant Nvidia knew cryptocurrency miners had eaten into card sales intended for gaming – and therefore potentially contributing to supply issues – but had illegally hid this fact from investors who repeatedly asked about the impact of crypto mining on Nvidia. game segment.

In a cease and desist order on Friday, the Securities and Exchange Commission said Nvidia would pay $5.5 million to settle allegations of improper disclosure, adding in a statement that the “omissions of material information from the society…were misleading”. Nvidia declined to comment for this story.

The order marks another sign of the SEC’s growing interest in virtual currencies; the agency separately announced this week that it was hiring 20 more people to investigate and prosecute cryptocurrency fraud and cybercrime. It also confirms concerns that PC gamers have been increasingly forced to compete with the cryptocurrency industry as the generation of coins such as Ethereum have become increasingly computationally demanding.

The SEC allegations focus on Nvidia’s quarterly reports in fiscal year 2018, when graphics cards began being used to mine virtual currencies. As the value of currencies such as Ethereum rose, “some NVIDIA sales personnel expressed their belief that much of the increased demand for the company’s gaming products, primarily in China, was driven by the cryptomining,” the SEC order said.

The company’s senior executives have sought to capitalize on that demand with a line of specialized cryptomining-only cards, the SEC wrote, but Nvidia salespeople and internal company estimates have suggested that cryptomining still represents “a important factor in year-over-year gaming revenue growth.

In the company’s quarterly reports, Nvidia reported revenue increases of 52% and 25% for the second and third quarters of 2018, respectively, compared to the same quarters a year earlier, according to the SEC.

“NVIDIA analysts and investors wanted to understand how the company’s gaming revenue was affected by crypto mining and regularly asked senior management how much gaming revenue increased during this period was due to crypto mining,” the SEC wrote. .

But because Nvidia did not mention the role of cryptomining in these numbers – while correctly citing cryptomining in other areas of its report – it gave the misleading impression that Nvidia’s gaming growth was sustainable or organic. , and not because of demand for a volatile digital currency, the SEC said.

“NVIDIA’s disclosure failures have deprived investors of critical information to assess the company’s business in a key market,” Kristina Littman, who heads the SEC’s Crypto Assets and Cyber ​​Unit, said in a statement. . “All issuers, including those seeking opportunities involving emerging technologies, must ensure that their disclosures are timely, complete and accurate.”

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