Nvidia to Pay $5.5 Million Fine After SEC Penalizes it for Inadequate Crypto Mining Disclosures

After the United States Securities and Exchange Commission (SEC) penalised major American chip company Nvidia for failing to appropriately disclose to investors the true impact of crypto mining on its gaming business, it has agreed to pay a $5.5-million fine without admitting or disputing the claims.

According to the SEC report, Nvidia failed to disclose that its Graphics Processing Units or GPUs were increasingly being used for crypto mining and that this was a key part of their material revenue growth over consecutive quarters of the 2018 fiscal year, as crypto prices soared and a global chip shortage took hold.

In the report, the commission noted: “Nvidia’s senior management internally expressed a desire to capture the crypto mining demand, and at the same time, shelter its gaming business from crypto miners and protect the supply of GPUs for gamers.”

“As a result, Nvidia launched a product line of crypto mining processors, known as ‘CMP’, which the company marketed to large crypto mining operations. Nvidia’s Forms 10-Q for the second and third fiscal quarters 2018 reported the CMP sales in the GPU reportable segment within PC OEM revenue,” it added.

“Based on known CMP sales, the company identified crypto mining as a significant element of the OEM GPU sales within the GPU reportable segment revenue in the company’s quarterly reports,” the report further stated.

Nvidia produced a line of crypto mining processors which it then sold to crypto enthusiasts. However, the report claimed that Nvidia employees were aware that crypto mining was driving up GPU purchases, particularly in China.

As per the report, “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.”

In comparison to the same period the previous fiscal year, the company enjoyed total growth and an increase in gaming income, according to the SEC report. Nvidia’s gaming revenue grew by 52% year over year in the second fiscal quarter of 2018 and by 25% year over year in the third fiscal quarter of 2018.

However, Kristina Littman, the chief of the SEC enforcement division’s crypto assets and the cyber unit, stated the failure to disclose crucial information deprived investors of the ability to properly evaluate the company’s gaming operation.

“Nvidia’s disclosure failures deprived investors of critical information to evaluate the company’s business in a key market. All issuers, including those that pursue opportunities involving emerging technology, must ensure that their disclosures are timely, complete, and accurate,” she added.

Meanwhile, SEC stated last week that it will expand the number of its enforcement teams that focus on crypto assets and cyber-related issues. The crypto assets and cyber unit, formerly known as the cyber unit, will get 20 new team members, bringing the total number of team members to 50.

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