The Security and Exchange Commission (SEC) has announced a settlement with Nvidia. The company has agreed to pay a $5.5 million fine for not disclosing mining sales in certain SEC filings in 2017. By obscuring how its business was being impacted by cryptocurrency, it didn’t provide the full picture to investors, the SEC alleged.
The SEC’s complaint hinges on two consecutive quarterly filings in the 2018 fiscal year. These were filed in August and November of 2017. At the time, the price of Ethereum (ETH) had begun to skyrocket. The SEC notes in its complaint that ETH was worth $10 on January 1, 2017. One year later, the price had soared to $800. During this time period, miners had begun buying Nvidia GPUs for cryptomining. In its quarterly filings, Nvidia reported sales in various categories. One of those categories was labeled “gaming.” The SEC notes that this category was responsible for half of the company’s $9.714 billion in revenue in fiscal year 2018. This category includes sales of GPUs for desktop, notebooks, and Tegra SoCs for consoles. The SEC charges that Nvidia experienced “material changes” to its revenue in the relevant period. This was significant compared to the previous fiscal year due to sales of GPUs to miners.
Gigabyte NVIDIA CMP 30HX D6 6G GPU for mining. (Image: Gigabyte)
The plot twist is the SEC alleges at this time Nvidia was receiving information that mining was impacting its bottom line. This was especially true in China. In the section of the complaint labeled “Facts,” it states: “During the relevant period, some of NVIDIA’s sales personnel expressed their belief that much of the increased demand for the company’s Gaming products, primarily in China, was being driven by cryptomining.” The SEC notes that Nvidia responded to this new market by introducing its CMP line of mining GPUs. It states Nvidia introducing CMP was the company acknowledging the impact mining was having on its sales.
The SEC goes on to say, “while the company could not track when and which specific Gaming GPUs were purchased for the purpose of cryptomining, company personnel estimated using various assumptions that the impact of cryptomining was at levels that would indicate cryptomining was a significant factor in the year-over-year growth in Gaming revenue during the relevant period.”The bottom line, according to the SEC, is that Nvidia had information during this period that mining was affecting its sales, but it included these sales under “gaming sales” in its filings. During this same time period it did note significant sales of its CMP GPUs, under its OEM category.
The story ends in February 28, 2018 where Nvidia filed another quarterly earnings report. In that form it “identified fluctuations in crypto asset prices as a risk to the company’s results of operations.” The SEC told Nvidia to pay a fine of $5.5 million to settle this issue, which it has. As the settlement press release states, “Without admitting or denying the SEC’s findings, NVIDIA agreed to a cease-and-desist order and to pay a $5.5 million penalty.”
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