Nvidia fined $5.5M for allegedly hiding crypto impact on GPUs

The U.S. Securities and Exchange Commission (SEC) fined Nvidia $ 5.5 million for allegedly failing to disclose the influence of cryptographic mining on its GPU sales during 2018.

The agency said it had settled charges against Nvidia “for inappropriate disclosures about the impact of cryptocurrency on the company’s gaming business.”

A cryptocurrency miner connected to a laptop Getty Images

That said, although Team Green agreed to a cessation and withdrawal order and the fine itself, the SEC said the company is doing so “without admitting or denying the SEC’s findings.”

There is one important distinction that needs to be emphasized here. The charges relate exclusively to Nvidia’s 2018 financial reports, which is right when the crypto market began its astronomical rise in the spotlight.

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

As reported by The Verge, the government agency claimed that the momentum for the cryptographic industry began to gain strength initially in 2017, which saw Nvidia allegedly benefit from having its gaming GPUs used as the preferred option for mining needs. cryptocurrencies of many consumers. .

Bitcoin prices have started to skyrocket, but Ethereum has also seen its popularity reach new heights. For reference, certain Nvidia graphics cards support ETH mining. If you had a decent system that could handle the constant mining activity, it could generate a considerable amount of profits.

To ensure a sufficient stock of GPUs demanded by gamers, The Verge highlights how Nvidia has launched its CMP range created for mining. However, it is said that some members of the company’s workforce have acknowledged that GPUs designed for gaming systems remain popular among the cryptographic mining community in particular.

“The company’s sales staff, particularly in China, reported what they believed were significant increases in gaming GPU demand as a result of cryptographic mining,” the report added.

The SEC also touched on this state of affairs in its press release.

“Nvidia analysts and investors were interested in understanding the extent to which the company’s gaming revenue was affected by cryptographic mining and regularly asked senior management about the extent to which gaming revenue increases during this period were driven. By cryptographic mining “.

However, the SEC alleges that Nvidia did not properly point to cryptographic mining as an area that affected sales for the gaming segment of its operations.

In other words, because cryptocurrency mining is such a volatile industry that it is subject to constant fluctuations (in some cases, overnight falls that cause the market capitalization of certain currencies to fall into hundreds of billions of dollars), investors would like to be aware. of the risks associated with investing in Nvidia if cryptography were really a major contributor to its results.

Workers transfer cryptocurrency mining platforms to a cryptocurrency farm.
Workers are transferring cryptocurrency mining platforms to a cryptocurrency farm that includes more than 3,000 mining platforms in Dujiangyan, Sichuan Province, southwest China. STR / AFP via Getty Images

The rise and fall (and rise again) of cryptography

In fact, The Verge even pointed to the cryptocurrency crash that materialized in the last stages of 2018. As a result, Nvidia’s quarterly earnings projections fell by $ 500 million, in addition to a lawsuit filed by shareholders.

As mentioned earlier, the SEC agreement is linked to Nvidia’s alleged lack of disclosure on the impact of cryptography in 2018.

“In two of its 10-Q forms for fiscal year 2018, Nvidia reported material revenue growth in its gaming business. Nvidia had information, however, that this increase in gaming sales was driven largely by cryptocurrency.

Despite this, Nvidia did not disclose in its Forms 10-Q, as it was required to do, these significant gains and cash flow fluctuations related to a volatile business for investors to determine the likelihood that past performance was indicative of future performance. .

The SEC has also ruled that Nvidia’s material misstatement of its gaming business growth was misleading as Nvidia made statements about how other parts of the company’s business were driven by the demand for crypto, creating the impression that the The company’s gaming business was not significantly affected by cryptocurrency. “

During 2020, which is when the GPU shortage began, cryptocurrency prices began to rise sharply, culminating in ETH prices peaking at more than $ 4,000 in 2021. As such, graphics cards were bought largely by crypto miners, while gamers and consumers had to pay hugely inflated prices if they wanted one.

Meanwhile, Nvidia has quietly released updated models for its GPUs that were, by all accounts, especially beneficial for cryptographic miners.

Ultimately, the $ 5.5 million fine will have no tangible impact on Nvidia’s operations. According to Tom’s Hardware, Nvidia generated $ 9.7 billion in revenue in 2018, of which $ 3 billion was profit.

As the PC gaming industry continues to grow, so does Team Green’s bank account: in 2021, the GPU giant made $ 26 billion in revenue, while making $ 9.7 billion in profits.

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