Nvidia Fined More Than $5 Million Over Crypto Mining Disclosure

The Security and Exchange Commission provides oversight functions on publicly listed companies.

When Nvidia’s investors accused it of misinforming them and keeping vital details from them, they reported to the Security and Exchange Commission (SEC)

In May 2022, the SEC concluded its investigation and announced that it would sanction Nvidia.

The sanction is to the tune of 5.5 million dollars.

The software company's offense is that it failed to disclose that crypto mining was a significant factor in the company's revenue growth.

Nvidia allegedly deprived its investors of vital information, enabling them to evaluate the company’s business in a critical market.

Nvidia had designed and launched a graphic card that video gamers and crypto miners could use.

In a deliberate attempt, Nvidia only informed its investors about the profit made from gamers who purchased the graphic chip and concealed the profits from crypto miners.

Nvidia has agreed to pay the $5.5 million to the Security and Exchange Commission.

Every publicly listed company is subject to the Security and Exchange Commission (SEC) regulations, and the SEC's responsibility is to protect the rights and privileges of investors, shareholders, and stakeholders.

For instance, when investors in a company perceive misinformation or are deprived of vital information about the growth and activities of the organization where they have a stake, they can approach the Security and Exchange Commission (SEC). The SEC will, in turn, carry out a thorough investigation, and if the assertions against the company are true, appropriate sanctions follow.

This is similar to what Nvidia is allegedly accused of and found guilty of, as reported by its investors. Not to worry, in this article, we shall highlight the charges leveled against Nvidia, the events surrounding the misinformation, and the actions of the Security and Exchange Commission.

Let’s begin!

SEC Slams $5.5 Million Fine On Nvidia

Image: DBLTAP

In May 2022, the news broke out that the Security and Exchange Commission (SEC) would sanction Nvidia, a software development company. The sanction will be to the tune of 5.5 million dollars because the information disclosed by the company regarding the effect of crypto mining on its gaming arm was insufficient.

According to the Security and Exchange Commission (SEC), Nvidia ``failed to disclose that crypto mining was sn important factor in year-over-year growth in the company's gaming revenue." These irregularities by Nvidia occurred during consecutive quarters in its 2018 fiscal year.

The Security and Exchange Commission (SEC) charges that in the Forms-10 Q for 2018, Nvidia misinformed its investors and the general public. SEC charges that the report of Nvidia that “material growth” in its gaming business was driven in “significant part” by crypto mining, but the company omitted the fact.

Kristina Littman, the Chief of Enforcement Division’s Crypto Assets and Cyber Unit at SEC, said, “ NVIDIA’s disclosure failures deprived investors of critical information to evaluate the company’s business in a key market.”

She also said, “All issuers, including those pursuing opportunities involving emerging technology, must ensure that their disclosures are timely, complete, and accurate.”

Summarily, the Commission ruled that the action of Nvidia violated parts of the Securities Act of 1933 and provisions in the Security Act of 1934.

On May 6, SEC slammed California-based NVIDIA with a monetary sanction. It was alleged that NVIDIA misled its investors by failing to report that crypto mining is responsible for revenue growth in two consecutive quarters in the 2018 fiscal year.

The company failed to reveal information about its sale of Graphics processing units (GPUs) designed and marketed for gaming.

After a long back and forth, Nvidia agreed to pay $5.5 million for misinforming investors about the demand cryptocurrency miners had placed on its graphics cards.

The Cause Of NVIDIA’s Irregularities And Misinformation

In March 2021, NVIDIA launched a new series of semiconductors called Cryptocurrency Mining Processor (CMP). The Semiconductors were designed for mining Ether (ETH).

Ether's mining algorithm works effectively on graphics cards, and the Cryptocurrency Mining Processor (CMP) launch by Nvidia made the Ether mining algorithm easy.

Nvidia, alongside the release of the semiconductors, also added software to its gaming graphic cards, and this prevents graphic cards from being used for cryptocurrency mining.

When the coronavirus struck, NVIDIA’s graphics cards became the “hot cake.” Most users were stuck at home playing games, and since the graphics card can be used to upgrade their gaming PCs, the demand for NVIDIA’s graphic card soared.

Similarly, crypto miners were using the graphics chip, which led to increased demand for Nvidia's graphics chips, leading to short supply in 2020 and the first quarter of 2021.

The increase in demand led to increased revenue for Nvidia. Instead of declaring revenues from the sales of graphic chips for gamers and crypto miners, the company only reported revenue generated for gamers and left out revenue from crypto miners.

Conclusion

Since the Security and Exchange Commission concluded its findings and sanctioned Nvidia to pay $5.5 million, the graphic chip-making company has agreed to pay the fine and released no statement.

Experts assert that the powerful processor graphics card is designed to handle video game graphics and cryptocurrency mining. So when users acquire the graphic chips, it is difficult for Nvidia to know what task the customers will use it for.

The sanction has affected Nvidia's stock causing a 20% decline over two trading days. Nvidia is now offering separate chips for crypto mining and gaming to forestall future investor complaints and prevent sanctions.





Author: Valentine. A, Gate.io Researcher
This article represents only the researcher's views and does not constitute any investment suggestions.
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