Nvidia, producer of graphics cards since prehistoric times, has just been fined $US5.5 (AUD $8) million by the U.S. Securities and Exchange Commission for failing to divulge to investors how much of its 2017-18 revenue came about from crypto-miners.
This 5.5 million dollars is a settlement made with the SEC regarding “Inadequate Disclosures about Impact of Cryptomining.” This specific case dates back to 2017, a time when the planet-ending antics of crypto-diggers made it so very hard for everyone else to buy a new graphics card, before the exact same people and a global chip shortage made it even worse.
In 2018 filings, Nvidia reported $US9.714 billion in revenue, of which half was credited to “Gaming,” but without properly indicating the role crypto played in these figures. Said numbers were dramatically up in fiscal year 2017, by as much as 52% in one quarter.
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.”
Which is to say, when its profits started climbing that year, Nvidia didn’t properly tell its investors why. When Nvidia recognised the huge mining market, it produced its line of “Cryptocurrency Mining Processor” (CMP) GPUs specifically aimed at crypto bros, but according to the SEC, their own workers knew that increasing gaming GPU sales were related to crypto as well. The report states,
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.
Nvidia was required to disclose this distinction on the very Brazil-sounding Forms 10-Q, but, say the SEC, did not despite having the information on hand. The reason this matters to the SEC is because of the volatility surrounding crypto bullshit, meaning that Nvidia hadn’t given investors the full picture regarding why numbers were going up. This meant investors were less able “to ascertain the likelihood that past performance was indicative of future performance.”
The SEC’s accompanying press release adds,
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.
This apparently meant investors were “deprived” of “critical information to evaluate the company’s business in a key market,” according to SEC Enforcement Division chief, Kristina Littman.
(For those playing the drinking game at home, it was Section 17(a)(2) and (3) of the Securities Act of 1933 that was violated, alongside the “disclosure provisions of the Securities Exchange Act of 1934.” Drink!)
This was despite said investors “routinely” asking Nvidia senior management “about the extent to which increases in Gaming revenue during this time frame were driven by crypto-mining.” It seems that by the end of the fiscal year 2018, Nvidia started to acknowledge both the role of crypto, 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 declined to admit to or deny these findings, but instead agreed to a cease-and-desist order, and to pay a $US5.5 million penalty. You know, the way you do when you’re definitely not admitting to doing something wrong. ($US5.5m is 0.05% of the company’s 2018’s declared revenue. This figure is meaningless to it.)
Kotaku reached out to ask if Nvidia wanted to offer its side of this story, but was told by a spokesperson, “We’ll decline to comment.”
As The Verge notes, that crypto volatility proved itself a real issue in late 2018, when the whole Ponzi scheme market crashed, and Nvidia had to cut projected earnings by half a billion dollars.
Crypto: fucking everything up for everyone since 2009.