NVIDIA Agrees To A $5.5 Million Cryto Revenue Fine Without Admitting Any Wrongdoing

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Chip designer NVIDIA Corporation has been fined $5.5 million by the Securities and Exchange Commission (SEC) for failing to disclose revenues from cryptocurrency sales in its fiscal year 2018. NVIDIA's fiscal year is a year ahead of the calendar year, and the Commission revealed earlier today that the chip firm did not report that it had sold a significant amount of graphics processing units (GPUs) to the miners despite having adequate information and knowledge about the sales. As a result, the firm's investors were unable to adequately assess the riskiness of the company's business, which then harmed them once the cryptocurrency 'bubble' burst in 2017 and sent NVIDIA, and its smaller rival Advanced Micro Devices, Inc's (AMD) revenues plummeting.

NVIDIA Deliberately Misled Investors By Shifting Attention Away From Cryptomining Contribution To Its Revenues By Focusing On Other Departments

The regulatory body's press release also outlines that as part of its deal with NVIDIA, the company has chosen to adopt a policy of deliberate ambiguity about its gaming disclosures. As the Commission states:

Watch The NVIDIA Computex 2022 Keynote Live Here – Gaming, Content Creation, Data Center & Networking Announcements

"Without admitting or denying the SEC's findings, NVIDIA agreed to a cease-and-desist order and to pay a $5.5 million penalty."

It is not the first time that the company's troubles with the GPU mining boom and bust of 2017 have made their way into the public eye. One such occurrence was in 2020 when a lawsuit was filed in the United States District Court for the Northern District of California Oklahoma Division alleging that the firm had misled investors about earning as much as a whopping $1 billion from GPU mining sales in its fiscal years 2019 and 2018.

The suit detailed that its claimants believed that the misrepresentation started in NVIDIA's second quarter of the fiscal year 2018 and continued for another four quarters to end in the fourth quarter of FY 2019. During these time periods, NVIDIA outlined that it had earned $600 million from cryptocurrency mining equipment sales while in reality the company had raked in $1.7 billion. This created a $1.1 billion gap alleged the lawsuit.

Table compiling the results of Pryson Group's study showing NVIDIA's alleged misclassification of cryptocurrency product revenue. The image is taken from page 10 of Case No. 4:18-cv-07669-HSG filed in the United States District Court for the Northern District of California Oklahoma Division.

The SEC's release, while unrelated to the lawsuit, appears to build upon the claims that are present in it. It states that while NVIDIA did admit to having sold equipment to the miners, it was careful enough to ensure that these disclosures remained limited to the firm's other businesses that were separate from its gaming division.

It states that:

In two of its Forms 10-Q for its fiscal year 2018, NVIDIA reported material growth in revenue within its gaming business. NVIDIA had information, however. that this increase in gaming sales was driven in significant part by cryptomining. Despite this, NVIDIA did not disclose in its Forms 10-Q, as it was required to do, hee significant earnings and cash flows fluctuations related to a volatile business for investors to ascertain the likelihood that past performance was indicative of future performance.

As is evident, the Commission also narrows down the scope of the impropriety to two fiscal quarters instead of the five stated in the lawsuit. What is certain however is that at least one of the quarters mentioned by it also overlaps with the lawsuit.

It is also unclear whether the mining revenues and the evidence the Commission believes the company possessed, were related to mining by professional users or those NVIDIA gamers who had bought a GPU for themselves but chose to mine coins instead after looking at the lucrative nature of the sector.

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