Nvidia recently received a $5.5 million fine from the Securities And Exchange Commission for lying about the impact of cryptocurrency mining on its revenue. Apart from making GPUs for gamers, Nvidia is also known for its focus on developing Artificial Intelligence software and its accompanying hardware. However, the sale of GPUs is still the main driving force that brings in the most profit for the chipmaker.
Nvidia mainly sells GPUs to gamers, OEMs and data centers. Gamers prefer Nvidia’s RTX 3000 and 2000 series desktop GPUs or a gaming laptop powered by the same graphics processors. For AI research, Nvidia sells specialized integrated software and hardware system like DGX-1 which drastically speeds up the machine learning process. Crypto miners are another group of people with whom Nvidia has had a profitable relationship as well. In 2017, Ethereum prices rose significantly from below $10 to around $800, making crypto miners an even bigger customer of the GPU maker.
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Crypto miners capitalized on this boom by buying graphics cards in droves from chip makers like Nvidia. For reference, an average Cryptominer buys more GPUs than an average gamer, which resulted in Nvidia’s profit increasing drastically. However, despite being aware of this information, Nvidia knowingly did not disclose that a considerable chunk of its earnings are due to crypto mining and not because of gamers buying more GPUs. According to Chief of the SEC Enforcement Division’s Crypto Assets and Cyber Unit, Kristina Littman, “NVIDIA’s disclosure failures deprived investors of critical information to evaluate the company’s business in a key market.”
Nvidia Fined For Misleading Investors And SEC
Nvidia failed to reveal the major source of its growth in two consecutive Forms 10-Q for 2018. For the uninitiated, Form 10-Q includes a detailed financial report that all public companies in the United States must submit every quarter. Full disclosure of every source of revenue is essential for all public companies to enable investors to make financially sound decisions. Unfortunately, Nvidia failed to do so thus misleading its investors.
The cryptocurrency market by nature is volatile, and hence any profits made from selling GPUs to miners cannot be indicative of future performance. By knowingly mislabeling profits from selling gaming GPUs to miners as being sold to gamers, Nvidia tricked investors into thinking its profits were stable, thus distorting their investing decisions by releasing false financial information. “All issuers, including those that pursue opportunities involving emerging technology, must ensure that their disclosures are timely, complete, and accurate,” Ms. Litmann further said.
As per the Securities And Exchange Commission, Nvidia violated Section 17(a)(2) and (3) of the SEC Act of 1933 and Disclosure Provisions of the SEC Act of 1934. It has agreed to a cease-and-desist order and to submit a $5.5 million fine, but it won’t deny or agree with SEC’s findings. In 2017, Nvidia was in the 39th spot out of 100 on Fortune’s ‘100 Best Companies To Work For’ list. This year, it was amongst the top 5.