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SEC Charges Nvidia with Inadequate Disclosures about Impact of Cryptomining

258 points by jmsflknr 4y ago

capableweb 4y ago
Now I'm no lawyer nor taxman, and know not a lot of laws in the US, but judging only by the contents of this press release, it seems they were charged with not disclosing that the sales were for cryptocurrency mining, not for doing the business in the first place. Which begs the question, does Nvidia have a responsibility to know exactly what their equipment is being used for, no matter if that activity is legal or not? Seems they would have to add a mandatory question asking "What are you gonna use this GPU for?" every time they sell a GPU, which seems weird (to me).
- philipwhiuk 4y ago
  No they don't have requirement to know. But if they do know what their GPUs are used for and then they say something else, that's a problem. And that's what the SEC has a problem with here.
  - philipwhiuk 4y ago
    They probably should have said something like: x units were sold from our gaming line of products, however market research indicates y % of them are likely being used for cryptomining.
    - singlow 4y ago
      I don't think it is even that important whether they specifically enumerate the destination of the cards. The important thing is that they should create an honest projection and risk assessment. When they present their earnings statement they need to indicate not only how much they sold but how much they expect to sell in the future. If they knew that a large portion of cards were going to cryptominers then they need ed to indicate the potential difference in growth stability between those sales and the normal consumer sales.
- paulgb 4y ago
  The issue here wasn't whether they should have known, but that they (apparently) did know and didn't disclose it. Whether NVIDIA has a duty to know is not at issue here, since they did: > NVIDIA had information, however, that this increase in gaming sales was driven in significant part by cryptomining Color me a little surprised that this is what SEC's Crypto Asset is spending resources on when there is such a dumpster fire of obvious fraud in other areas of crypto (looking at you, public mining companies), but I suppose NVIDIA's upswing did catch a lot of retail investors.
  - jonathaneunice 4y ago
    You're absolutely right this is the least of the crypto dumpster fires / fraud situations. But the official disclosures of public equity firms is one of the lampposts the SEC's clearly mandated to look under. In fact, crypto is essentially immaterial here. If NVIDIA knew that a huge part of their GPUs were being used for the new, highly-volatile fad of Quantum Fubaring instead of the gaming market NVIDIA'd previously disclosed was the market target, the SEC would still have the right and responsibility to ding them for deceptive or insufficient disclosures.
- duxup 4y ago
  I don't think you HAVE to know, but let's say you don't know, now you better not make a statement like you do know in you're earnings report. Or if you do and you make a false statement ...
- gambiting 4y ago
  >>Which begs the question, does Nvidia have a responsibility to know exactly what their equipment is being used for, no matter if that activity is legal or not? They are being charged not for not knowing, they are being charged for knowing and not disclosing it. The "knowing" part seems to be a forgone conclusion, or at least SEC must have ironclad proof. >> Seems they would have to add a mandatory question asking "What are you gonna use this GPU for?" No, but if they are selling thousands of GPUs to cryptominers, they don't need to ask to know. Same how if the US Airforce purchased 100k GPU chips, you can safely assume they won't be using them to play Fortnite, no questionnaire necessary.
  - erikerikson 4y ago
    The Airforce has flight simulators and other video games for which it must use GPUs. Additionally there are ML models to build and so on. Of the things I would predict, crypto mining would be the least of them.
    - gpderetta 4y ago
      I don't think the parent was implying they were.
      - erikerikson 4y ago
        > Same how if the US Airforce purchased 100k GPU chips, you can safely assume they won't be using them to play Fortnite, no questionnaire necessary. My intention was to gently counter this statement. I took Fortnite as a proxy for video games and I meant to add to the conversation that it does use video games. For a while the military was even publishing video games.
    - gambiting 4y ago
      Of course, but when you are disclosing your business activities, selling to the military is a pretty major thing to mention, no? You wouldn't just lump it all under "gaming", because your gpus might be used to play video games.
- tfehring 4y ago
  NVIDIA is required to monitor material risks to its business and disclose them to shareholders. I think in theory the reason for that requirement is so that unsophisticated retail investors don't buy the stock and then lose a bunch of money due to risks they didn't anticipate, though it feels pretty quaint to expect retail investors to read Forms 10-Q. Importantly, they did (according to the press release) know that a big part of their sales growth was from cryptomining. I have no idea how they measured the magnitude, but miners weren't exactly quiet about scooping up graphics cards.
  - senko 4y ago
    > [any public company] is required to monitor material risks to its business and disclose them to shareholders This basically means everything is securities fraud: https://www.bloomberg.com/opinion/articles/2019-06-26/everything-everywhere-is-securities-fraud https://www.bloomberg.com/opinion/articles/2019-06-26/everyt... The parent question still stands: why would NVIDIA need to police how their products get used? They're not manufacturing weapons or drugs.
    - Retric 4y ago
      No, the requirement isn’t perfection but NVIDA is charged with failing to disclose significant risk that they where aware of.
    - gpderetta 4y ago
      They do not need to police it. But how their products are used has an impact on the growth of the company as it can affect future demand; it appears that if the company has this sort of knowledge it is supposed to disclose it to investors.
      - singlow 4y ago
        Right. And not just disclose it as a fact, but incorporate it into their projects and risk outlooks.
    - JackFr 4y ago
- TrueDuality 4y ago
  I'm reading this the same way as others but I've got a little bit different context. It is the responsibility of publicly traded companies to disclose known risks to their investors. Nvidia effectively got major market growth by knowingly selling and presumably prioritizing sales to an target audience that is known to be _extremely_ volatile. It looks to me like Nvidia downplayed where their growth was coming from so investors (conjecture based on my own observations) couldn't accurately gauge the risk associated with their growth and that is where the SEC starts paying attention.
  - JohnJamesRambo 4y ago
    My goodness though, anyone with a brain knew the cards weren’t going to gamers. Was this not known to the average investor? I guess it doesn’t even matter because the $5.5 million fine is so laughably small for the rewards they reaped that I’m sure they are still laughing.
    - Xelbair 4y ago
      >anyone with a brain knew the cards weren’t going to gamers. you answered this yourself.
    - kelnos 4y ago
      Maybe, maybe not. But the point isn't who the products were going to, it's just that the explosive growth was driven by an unusual, unpredictable customer base, and Nvidia should have disclosed that future growth would be affected if the cryptocurrency mining landscape (something far more volatile than the "regular" market for GPUs) were to change. I agree that it seems dumb for the average investor not to know this, but this is just how this sort of thing works.
      - lukeschlather 4y ago
        What's confusing to me is I swear I've read press releases from Nvidia that have clearly said "we're not adding new GPU production capacity because cryptocurrency miners are creating a demand bubble that's going to pop." Maybe from 2019 though, so maybe they were just waking up to it in 2018.
- 7speter 4y ago
  There’s been prevalent rumors in the gaming community that nvidia sold complete graphics cards to mining operations. A lot of times its waived off as the board partners (Asus, MSI, Zotac, etc) and not nvidia but nvidia does sell reference (they call them founders edition) cards. Also there was this big thing in december where there were rumors of a 12gb 2060 design that would alleviate gamer demand but it turned out the whispers that came out of the rumor mill itself a week before the release was that those gpus were made with the top priority of going to miners and not gamers. When examples of those cards came to market they were going for ~750 dollars in january, but now nvidia and board partners seemingly have pie in their face with those cards rotting on shelves at microcenters for $389 (the 2060 is a previous generation card and its original msrp was 329 in 2019). The sec may be starting an investigation from the top down to see if nvidia had any involvement in what they are accusing them of and will see what degree of complicity they and board partners had in all of this. Anyways I’m jumping the gun a bit there but there are distinct differences between cards for typical consumer uses (gaming, and video and machine learning workflows) and mining, and mining was a big part of the reason why prices were insane (a 3070ti which can now be found on sale for 699 was going for 1900+ dollars on amazon at ethereums peak) since January of last year until the recent gradual descent in prices.
- madeofpalk 4y ago
  The relevant part from the article: > 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, these significant earnings and cash flow fluctuations related to a volatile business for investors to ascertain the likelihood that past performance was indicative of future performance.
- lettergram 4y ago
  I don’t think this makes sense. The SEC isn’t there to protect the share holders, I don’t know wtf this is. The only thing they could be required to disclose was the percent of sales THEY KNEW were being used for crypto. They also wouldn’t be required to capture that data really. Plus I’ve been on their quarterly calls, they’ve been pretty open about their exposure to crypto so idk. This seems well beyond the scope of the SEC... imo it’s their broader plan to go after crypto, but everyone knows they have no legal basis currently to do so.
- vondur 4y ago
  Heck, they modified their driver software to make reduce bitcoin mining efficiency.
- spamizbad 4y ago
  You have to disclose what you know. It's fine to say "We know people are buying them, but we do not have metrics as toward their use" assuming that's a factually true statement (your business does not collect metrics from sales channels or consumers giving you an indication toward their use). A terrible way to run a business, but legal! However, if your data indicates that most of your revenue growth is likely due to crypto mining and you turn around and tell investors it's because of gaming, you are lying and misleading your investors.
- macspoofing 4y ago
  > does Nvidia have a responsibility to know exactly what their equipment is being used for, no matter if that activity is legal or not? In aggregate .. yes. As a company, you should know if the increase in sales for your product was a result of the gaming market growing, or the research market growing, or the crypto market growing. And as a publicly traded company, you have to communicate this to investors. >Seems they would have to add a mandatory question asking "What are you gonna use this GPU for?" They don't need to do that.
- jcranberry 4y ago
  The issue is that they knowingly misinformed their investors. >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.
- ineedasername 4y ago
  Public companies have a responsibility to disclose any known risks that are material to their performance. It could be argued that they don't have a responsibility, or only a limited one. But in this case they really can't that they're actually unaware of it's use for mining. It's not necessary on an individual person-by-person basis, they know that a substantial amount of hardware is used for it. Perhaps they don't know exactly how many or what %, but a little bit of market research-- over an issue highly material to their bottom line-- would be expected (and was probably done, but maybe they're bad at their jobs). At a minimum it's trivial to see that sales are correlated to the crypto market. Also AMD managed to note the risk in its own 10-Q filings.
- stjohnswarts 4y ago
  I think it's ridiculous. I think if the government wants you to "declare" something they need to make it explicit and how important that is to "declare". This is probably just someone in that department trying to get their name in trade rags in order to get a promotion.
cc1616 4y ago
Naive question: What does Nvidia have to gain from not accurately disclosing this information?
- philipwhiuk 4y ago
  Maybe more investment. If you're an investor who thinks crypto is a flash in the pan whereas gaming demand is likely more permanent, if you are told the growth is gaming, not crypto, you'll be more likely to invest.
- tejohnso 4y ago
  They could state, or imply, that their sales growth is due to an increased demand in their core business. Which may be considered much better than the increased demand coming from a secondary, highly volatile, and potentially highly regulated business.
- duxup 4y ago
  It could be an actual mistake. On the other hand I know Nvida and others are sensitive to how they're perceived by non crypto folks and would / could even accidentally try to downplay how much the price / sales are driven by crypto. But you really shouldn't do that in an earnings report.
- y04nn 4y ago
  By not disclosing it they hide the fact that their core business growth may be at risk in case of a cryptocurrency crash. And they may know that if they sell directly to crypto miners.
boredumb 4y ago
Just wait till the feds find out that my "gaming" card has been used extensively to train pytorch models. Book um danno!
- reaperducer 4y ago
  Just wait till the feds find out that my "gaming" card has been used extensively to train pytorch models. Book um danno! Are you telling your investors that you're using your gaming card for games, and then using it for pytorch models? Remembering that this is the SEC, not the FBI, gives you a lot of context.
  - selimthegrim 4y ago
    But Agent, I started my rig up at 8:00 am that morning, not 8:01 am like the power company records say...
  - boredumb 4y ago
    For starters it was a joke, but the SEC is still a federal agency, for joke context.
pigtailgirl 4y ago
Section 17(a)(2) and (3) of the Securities Act "(2)to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (3)to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser."
someguydave 4y ago
Sounds like a pretext to begin regulating tech like finance.
- duxup 4y ago
  No this is just a run of the mill dorked up quarterly earnings disclosure.
- JackFr 4y ago
  a $5 million fine with no admission of wrongdoing on a company with quarterly revenue > $7 billion? This is barely a wrist slap.
  - someguydave 4y ago
    I agree, it seems like a waste of everyone’s time, unless the government was executing some nefarious agenda.
    - frenchy 4y ago
      > some nefarious agenda Like requiring that publicly own companies disclose known sources of income?
tejohnso 4y ago
> NVIDIA agreed to a cease-and-desist order and to pay a $5.5 million penalty. So roughly 0.02% of last year's revenue. Basically a warning, I guess.
- ergocoder 4y ago
  If anything, Nvidia shouldn't have paid anything. The wrongdoing here is just so strange and on the fence.
- throwme_123 4y ago
  Not a major crime though... if any at all. They sell gaming cards, does not matter what game you play (even the mining coin game).
jpalomaki 4y ago
” 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 […]” That seems to be main issue - they knew, but did not disclose.
- ticklemyelmo 4y ago
  They didn't disclose that information that everyone even vaguely involved in the tech and gaming industry knew!
- xiphias2 4y ago
  Additionally Jensen Huang was specifically asked about it in the quaterly call and said that it wasn't significant part of the demand from that quarter. It made a lot of investors angry, as it was a very strange statement that didn't really make sense.
FollowingTheDao 4y ago
Gaming, yeah, that's the problem, not the environmental damage...
omginternets 4y ago
I’m intrigued by the fact that the press release focuses on cryptomining, specifically, but also suggests that the issue has to do with fiduciary duty. Would Nvidia have been charged if they had failed to disclose a similar volume of sales to, say, scientific research labs? In other words, is this about the US’s policy towards (foreign?) crypto operations, or is it “just” about nvidia’s investors?
- duxup 4y ago
  Legally, yes it would be the same situation. If they were tracking research labs buying product and then got something wrong about it on their disclosure they'd be in the same situation. Legally it is all about the disclosure. Conspiracy minded crypto super fans might find it hard to believe but ultimately this is a small slap for a dorked up disclosure that can be easily avoided by Nvidia. The amount of crypto related purchases could be 100% and as long as Nvidia doesn't dork up disclosing that (or even saying what they know accurately) nothing happens here.
  - omginternets 4y ago
    Yeah, that was my lay impression as well. The fact that it’s crypto seems largely immaterial, except maybe insofar as it’s a risky market.
bodhiandphysics 4y ago
Note that this is the announcement of a settlement. Nvidia agrees to pay 5.5 million, agrees to state the risk, and doesn’t admit to fault. No one is in serious trouble... nvidia should have indicated the risk, and didn’t... (probably because someone in legal fucked up). It’s not like investors didn’t know this was a risk!
- drc500free 4y ago
  Exactly. This is a light slap on the wrist for not including a two sentence blurb in the "risk factors" section that no sophisticated investor relies upon. But as a public company, they are supposed to make things clear for unsophisticated investors.
  - KennyBlanken 4y ago
    No, it's for attributing the sales to gaming industry growth, not more volatile crypto.
  - albertshin 4y ago
    In reality though I wonder how many of the "unsophisticated" investors have even opened a 10-K before investing... Let alone know what it is...
- danuker 4y ago
  > probably because someone in legal fucked up Isn't there a list containing every risk in the world, that one can paste into the form? Would that suffice?
kerng 4y ago
Interesting that the SEC didn't know while probably everyone in in the world knew at least since 2017 that graphics cards are hard to buy because of the cryptomining demand. Maybe one these things that are so obvious and hence not explicitly mentioned.
- singlow 4y ago
  Its not about whether the SEC knew. It is about whether nvidia properly incorporated that knowledge into their financial reporting. If nvidia knew how many of its cards were going to crypto then they needed to properly report that as a market segment that has different growth profiles than the standard gaming market. That way analysts could evaluate their projections more effectively.
  - deleted 4y ago
    [deleted]
onphonenow 4y ago
Umm, wasn't this super well known? Every enthusiasts website had tons of tracking of card prices which were high because of... cryptomining. I mean, really entry level folks knew this. When crypto prices would go down a bunch of articles would pop up saying, hey, maybe supply for gaming will go up. I read these risk sections and 80% of the stuff is so overblown, boilerplate, repetitive, well known etc that it loses its usefulness.
- xxpor 4y ago
  This was from 2018, before card prices really exploded.
  - onphonenow 4y ago
    That is a key point then ok.
KasianFranks 4y ago
[deleted]
- birracerveza 4y ago
  I'm the first one to complain about "crypto bad" articles, but this is simply related to crypto mining, nothing else. It's sure to attract the crypto detractors crowd to complain about how crypto is destroying the environment, though.
  - microtherion 4y ago
    Even an investor who has full faith in the crypto industry might not want to invest in a company deriving significant revenue from selling GPU mining hardware, because if the long-announced switch of Ethereum from proof of work to proof of stake ever happens, that revenue might drop massively, as other chains seem much smaller and/or less lucrative: https://whattomine.com https://whattomine.com
Barrera 4y ago
This seems to be the crux of the case, which the document clarifies has been settled: > 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, these significant earnings and cash flow fluctuations related to a volatile business for investors to ascertain the likelihood that past performance was indicative of future performance. The SEC’s order also finds that NVIDIA’s omissions of material information about the growth of its gaming business were misleading given that NVIDIA did make statements about how other parts of the company’s business were driven by demand for crypto, creating the impression that the company’s gaming business was not significantly affected by cryptomining. Some commenters are asking where the line gets drawn for the responsibility of disclosure. From this document, the SEC is saying that if material risks are known and not disclosed, that's a red line they will take action on.
citizenpaul 4y ago
Its good the SEC is investigating poor disclosures. You know rather than the rampant fraudulent activity happening all across their supposed purview.
jenny91 4y ago
NVIDIA knew a lot of their GPUs were bought for crypto mining, but attributed those sales instead to growth in gaming, potentially misleading some investors (maybe they wanted to invest in gaming, not the very volatile crypto industry). This is the SEC doing their job, giving a public company a reminder to be honest about their disclosures. The fine is insignificant and nobody is in trouble. It has nothing to do with whether people could've read between the lines, whether NVIDIA has a duty to know what their products are used for, or anything like that. Just that they knew what was going on and told a small lie to bolster their finances. You should be able to read company financial disclosures and trust them.
- mgh2 4y ago
  What about AMD?
  - ineedasername 4y ago
    AMD properly noted potential volatility due to cryptocurrency mining their SEC filings. [1] >The demand for our products depends in part on the market conditions in the industries into which they are sold.... for example, our GPU revenue has been affected in part by the volatility of the cryptocurrency mining market...If we are unable to manage the risks related to the volatility of the cryptocurrency mining market, our GPU business could be materially adversely affected. That's from their most recent one, but similar statements are in prior ones as well. [1] https://ir.amd.com/sec-filings/filter/quarterly-filings/content/0000002488-22-000078/amd-20220326.htm?TB_iframe=true&height=auto&width=auto&preload=false https://ir.amd.com/sec-filings/filter/quarterly-filings/cont...
    - paulmd 4y ago
      NVIDIA noted it too. This is about their earnings calls where they gave estimates of the magnitude of the crypto sales, and did what I consider (and really, most people who looked at it seriously) to be a massive massive undercount, by a factor of like 3-10x. AMD was underselling it too though (in 2017-2018 it was a huge factor, not so much this time) and they had a huge inventory overhang lasting years as well... ctrl-f "inventory" in their late-2018/early-2019 earnings call transcripts. https://www.fool.com/earnings/call-transcripts/2019/01/30/advanced-micro-devices-amd-q4-2018-earnings-confer.aspx https://www.fool.com/earnings/call-transcripts/2019/01/30/ad...
zzleeper 4y ago
I just bought an RX 6600, for about $320. It's definitely not the latest GPU, not even close, but it made me realize something: Because of the GPU shortage, game makers couldn't rely on enough users having the best/latest card, so now there is not much point in having, say, a RTX 3090, where a 3080 performs as well for most non-mining purposes. Now, what if crypto enters a crisis (or ETH switches to PoS, which is less likely), and then the next generation of GPUs has almost no demand at the inflated triple-digit prices. That's going to be a huge hit to its market cap
- mtoner23 4y ago
  Eth is switching to PoS https://ethereum.org/en/upgrades/merge/ https://ethereum.org/en/upgrades/merge/
  - dehugger 4y ago
    When? The time frame on that page is "eventually" which more or less equates to "perhaps, someday". Until a date is committed to and the merge actually occurs Ethereum proof of stake will never be taken seriously.
    - okwubodu 4y ago
      There’s more than 25 billion on the line with the merge so it’s not like they’re stalling for fun.
  - tromp 4y ago
    Probably sometime in the next 5 years...
- vmception 4y ago
  > and then the next generation of GPUs has almost no demand at the inflated triple-digit prices. That's going to be a huge hit to its market cap NVIDIA ('s distributors) still sale at the lower MSRP (right?) so the risk for them is people not buying them at all, which seems more farfetched maybe I'm wrong, but I thought the true price was shown by what scalpers could fetch, which means the places the scalpers buy from had the wrong lower price
ineedasername 4y ago
Well, I know who is going to be the target of Matt Levine's next "everything is securities fraud" posting.
whywhywhywhy 4y ago
If running a GPU 100% to mine crypto is a problem, why wouldn't running the same GPU at 100% to simulate a virtual cowboy world not be a problem?
stjohnswarts 4y ago
Nvidia is now Big GPU? lol
jokoon 4y ago
I wonder if there is a conspiracy of big GPU trying to promote crypto currencies. Although I wonder if you can absorb the cost of an expensive GPU+power bill by reselling bitcoins, because I'm not sure it's profitable.
mrtweetyhack 4y ago

258 points by jmsflknr 4y ago

Now I'm no lawyer nor taxman, and know not a lot of laws in the US, but judging only by the contents of this press release, it seems they were charged with not disclosing that the sales were for cryptocurrency mining, not for doing the business in the first place. Which begs the question, does Nvidia have a responsibility to know exactly what their equipment is being used for, no matter if that activity is legal or not? Seems they would have to add a mandatory question asking "What are you gonna use this GPU for?" every time they sell a GPU, which seems weird (to me).

philipwhiuk 4y ago
No they don't have requirement to know. But if they do know what their GPUs are used for and then they say something else, that's a problem. And that's what the SEC has a problem with here.
- philipwhiuk 4y ago
  They probably should have said something like: x units were sold from our gaming line of products, however market research indicates y % of them are likely being used for cryptomining.
  - singlow 4y ago
    I don't think it is even that important whether they specifically enumerate the destination of the cards. The important thing is that they should create an honest projection and risk assessment. When they present their earnings statement they need to indicate not only how much they sold but how much they expect to sell in the future. If they knew that a large portion of cards were going to cryptominers then they need ed to indicate the potential difference in growth stability between those sales and the normal consumer sales.
paulgb 4y ago
The issue here wasn't whether they should have known, but that they (apparently) did know and didn't disclose it. Whether NVIDIA has a duty to know is not at issue here, since they did: > NVIDIA had information, however, that this increase in gaming sales was driven in significant part by cryptomining Color me a little surprised that this is what SEC's Crypto Asset is spending resources on when there is such a dumpster fire of obvious fraud in other areas of crypto (looking at you, public mining companies), but I suppose NVIDIA's upswing did catch a lot of retail investors.
- jonathaneunice 4y ago
  You're absolutely right this is the least of the crypto dumpster fires / fraud situations. But the official disclosures of public equity firms is one of the lampposts the SEC's clearly mandated to look under. In fact, crypto is essentially immaterial here. If NVIDIA knew that a huge part of their GPUs were being used for the new, highly-volatile fad of Quantum Fubaring instead of the gaming market NVIDIA'd previously disclosed was the market target, the SEC would still have the right and responsibility to ding them for deceptive or insufficient disclosures.
duxup 4y ago
I don't think you HAVE to know, but let's say you don't know, now you better not make a statement like you do know in you're earnings report. Or if you do and you make a false statement ...
gambiting 4y ago
>>Which begs the question, does Nvidia have a responsibility to know exactly what their equipment is being used for, no matter if that activity is legal or not? They are being charged not for not knowing, they are being charged for knowing and not disclosing it. The "knowing" part seems to be a forgone conclusion, or at least SEC must have ironclad proof. >> Seems they would have to add a mandatory question asking "What are you gonna use this GPU for?" No, but if they are selling thousands of GPUs to cryptominers, they don't need to ask to know. Same how if the US Airforce purchased 100k GPU chips, you can safely assume they won't be using them to play Fortnite, no questionnaire necessary.
- erikerikson 4y ago
  The Airforce has flight simulators and other video games for which it must use GPUs. Additionally there are ML models to build and so on. Of the things I would predict, crypto mining would be the least of them.
  - gpderetta 4y ago
    I don't think the parent was implying they were.
    - erikerikson 4y ago
      > Same how if the US Airforce purchased 100k GPU chips, you can safely assume they won't be using them to play Fortnite, no questionnaire necessary. My intention was to gently counter this statement. I took Fortnite as a proxy for video games and I meant to add to the conversation that it does use video games. For a while the military was even publishing video games.
  - gambiting 4y ago
    Of course, but when you are disclosing your business activities, selling to the military is a pretty major thing to mention, no? You wouldn't just lump it all under "gaming", because your gpus might be used to play video games.
tfehring 4y ago
NVIDIA is required to monitor material risks to its business and disclose them to shareholders. I think in theory the reason for that requirement is so that unsophisticated retail investors don't buy the stock and then lose a bunch of money due to risks they didn't anticipate, though it feels pretty quaint to expect retail investors to read Forms 10-Q. Importantly, they did (according to the press release) know that a big part of their sales growth was from cryptomining. I have no idea how they measured the magnitude, but miners weren't exactly quiet about scooping up graphics cards.
- senko 4y ago
  > [any public company] is required to monitor material risks to its business and disclose them to shareholders This basically means everything is securities fraud: https://www.bloomberg.com/opinion/articles/2019-06-26/everything-everywhere-is-securities-fraud https://www.bloomberg.com/opinion/articles/2019-06-26/everyt... The parent question still stands: why would NVIDIA need to police how their products get used? They're not manufacturing weapons or drugs.
  - Retric 4y ago
    No, the requirement isn’t perfection but NVIDA is charged with failing to disclose significant risk that they where aware of.
  - gpderetta 4y ago
    They do not need to police it. But how their products are used has an impact on the growth of the company as it can affect future demand; it appears that if the company has this sort of knowledge it is supposed to disclose it to investors.
    - singlow 4y ago
      Right. And not just disclose it as a fact, but incorporate it into their projects and risk outlooks.
  - JackFr 4y ago
TrueDuality 4y ago
I'm reading this the same way as others but I've got a little bit different context. It is the responsibility of publicly traded companies to disclose known risks to their investors. Nvidia effectively got major market growth by knowingly selling and presumably prioritizing sales to an target audience that is known to be _extremely_ volatile. It looks to me like Nvidia downplayed where their growth was coming from so investors (conjecture based on my own observations) couldn't accurately gauge the risk associated with their growth and that is where the SEC starts paying attention.
- JohnJamesRambo 4y ago
  My goodness though, anyone with a brain knew the cards weren’t going to gamers. Was this not known to the average investor? I guess it doesn’t even matter because the $5.5 million fine is so laughably small for the rewards they reaped that I’m sure they are still laughing.
  - Xelbair 4y ago
    >anyone with a brain knew the cards weren’t going to gamers. you answered this yourself.
  - kelnos 4y ago
    Maybe, maybe not. But the point isn't who the products were going to, it's just that the explosive growth was driven by an unusual, unpredictable customer base, and Nvidia should have disclosed that future growth would be affected if the cryptocurrency mining landscape (something far more volatile than the "regular" market for GPUs) were to change. I agree that it seems dumb for the average investor not to know this, but this is just how this sort of thing works.
    - lukeschlather 4y ago
      What's confusing to me is I swear I've read press releases from Nvidia that have clearly said "we're not adding new GPU production capacity because cryptocurrency miners are creating a demand bubble that's going to pop." Maybe from 2019 though, so maybe they were just waking up to it in 2018.
7speter 4y ago
There’s been prevalent rumors in the gaming community that nvidia sold complete graphics cards to mining operations. A lot of times its waived off as the board partners (Asus, MSI, Zotac, etc) and not nvidia but nvidia does sell reference (they call them founders edition) cards. Also there was this big thing in december where there were rumors of a 12gb 2060 design that would alleviate gamer demand but it turned out the whispers that came out of the rumor mill itself a week before the release was that those gpus were made with the top priority of going to miners and not gamers. When examples of those cards came to market they were going for ~750 dollars in january, but now nvidia and board partners seemingly have pie in their face with those cards rotting on shelves at microcenters for $389 (the 2060 is a previous generation card and its original msrp was 329 in 2019). The sec may be starting an investigation from the top down to see if nvidia had any involvement in what they are accusing them of and will see what degree of complicity they and board partners had in all of this. Anyways I’m jumping the gun a bit there but there are distinct differences between cards for typical consumer uses (gaming, and video and machine learning workflows) and mining, and mining was a big part of the reason why prices were insane (a 3070ti which can now be found on sale for 699 was going for 1900+ dollars on amazon at ethereums peak) since January of last year until the recent gradual descent in prices.
madeofpalk 4y ago
The relevant part from the article: > 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, these significant earnings and cash flow fluctuations related to a volatile business for investors to ascertain the likelihood that past performance was indicative of future performance.
lettergram 4y ago
I don’t think this makes sense. The SEC isn’t there to protect the share holders, I don’t know wtf this is. The only thing they could be required to disclose was the percent of sales THEY KNEW were being used for crypto. They also wouldn’t be required to capture that data really. Plus I’ve been on their quarterly calls, they’ve been pretty open about their exposure to crypto so idk. This seems well beyond the scope of the SEC... imo it’s their broader plan to go after crypto, but everyone knows they have no legal basis currently to do so.
vondur 4y ago
Heck, they modified their driver software to make reduce bitcoin mining efficiency.
spamizbad 4y ago
You have to disclose what you know. It's fine to say "We know people are buying them, but we do not have metrics as toward their use" assuming that's a factually true statement (your business does not collect metrics from sales channels or consumers giving you an indication toward their use). A terrible way to run a business, but legal! However, if your data indicates that most of your revenue growth is likely due to crypto mining and you turn around and tell investors it's because of gaming, you are lying and misleading your investors.
macspoofing 4y ago
> does Nvidia have a responsibility to know exactly what their equipment is being used for, no matter if that activity is legal or not? In aggregate .. yes. As a company, you should know if the increase in sales for your product was a result of the gaming market growing, or the research market growing, or the crypto market growing. And as a publicly traded company, you have to communicate this to investors. >Seems they would have to add a mandatory question asking "What are you gonna use this GPU for?" They don't need to do that.
jcranberry 4y ago
The issue is that they knowingly misinformed their investors. >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.
ineedasername 4y ago
Public companies have a responsibility to disclose any known risks that are material to their performance. It could be argued that they don't have a responsibility, or only a limited one. But in this case they really can't that they're actually unaware of it's use for mining. It's not necessary on an individual person-by-person basis, they know that a substantial amount of hardware is used for it. Perhaps they don't know exactly how many or what %, but a little bit of market research-- over an issue highly material to their bottom line-- would be expected (and was probably done, but maybe they're bad at their jobs). At a minimum it's trivial to see that sales are correlated to the crypto market. Also AMD managed to note the risk in its own 10-Q filings.
stjohnswarts 4y ago
I think it's ridiculous. I think if the government wants you to "declare" something they need to make it explicit and how important that is to "declare". This is probably just someone in that department trying to get their name in trade rags in order to get a promotion.

cc1616 4y ago

Naive question: What does Nvidia have to gain from not accurately disclosing this information?

philipwhiuk 4y ago
Maybe more investment. If you're an investor who thinks crypto is a flash in the pan whereas gaming demand is likely more permanent, if you are told the growth is gaming, not crypto, you'll be more likely to invest.
tejohnso 4y ago
They could state, or imply, that their sales growth is due to an increased demand in their core business. Which may be considered much better than the increased demand coming from a secondary, highly volatile, and potentially highly regulated business.
duxup 4y ago
It could be an actual mistake. On the other hand I know Nvida and others are sensitive to how they're perceived by non crypto folks and would / could even accidentally try to downplay how much the price / sales are driven by crypto. But you really shouldn't do that in an earnings report.
y04nn 4y ago
By not disclosing it they hide the fact that their core business growth may be at risk in case of a cryptocurrency crash. And they may know that if they sell directly to crypto miners.

boredumb 4y ago

Just wait till the feds find out that my "gaming" card has been used extensively to train pytorch models. Book um danno!

reaperducer 4y ago
Just wait till the feds find out that my "gaming" card has been used extensively to train pytorch models. Book um danno! Are you telling your investors that you're using your gaming card for games, and then using it for pytorch models? Remembering that this is the SEC, not the FBI, gives you a lot of context.
- selimthegrim 4y ago
  But Agent, I started my rig up at 8:00 am that morning, not 8:01 am like the power company records say...
- boredumb 4y ago
  For starters it was a joke, but the SEC is still a federal agency, for joke context.

pigtailgirl 4y ago

Section 17(a)(2) and (3) of the Securities Act "(2)to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (3)to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser."

someguydave 4y ago

Sounds like a pretext to begin regulating tech like finance.

duxup 4y ago
No this is just a run of the mill dorked up quarterly earnings disclosure.
JackFr 4y ago
a $5 million fine with no admission of wrongdoing on a company with quarterly revenue > $7 billion? This is barely a wrist slap.
- someguydave 4y ago
  I agree, it seems like a waste of everyone’s time, unless the government was executing some nefarious agenda.
  - frenchy 4y ago
    > some nefarious agenda Like requiring that publicly own companies disclose known sources of income?

tejohnso 4y ago

> NVIDIA agreed to a cease-and-desist order and to pay a $5.5 million penalty. So roughly 0.02% of last year's revenue. Basically a warning, I guess.

ergocoder 4y ago
If anything, Nvidia shouldn't have paid anything. The wrongdoing here is just so strange and on the fence.
throwme_123 4y ago
Not a major crime though... if any at all. They sell gaming cards, does not matter what game you play (even the mining coin game).

jpalomaki 4y ago

” 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 […]” That seems to be main issue - they knew, but did not disclose.

ticklemyelmo 4y ago
They didn't disclose that information that everyone even vaguely involved in the tech and gaming industry knew!
xiphias2 4y ago
Additionally Jensen Huang was specifically asked about it in the quaterly call and said that it wasn't significant part of the demand from that quarter. It made a lot of investors angry, as it was a very strange statement that didn't really make sense.

FollowingTheDao 4y ago

Gaming, yeah, that's the problem, not the environmental damage...

omginternets 4y ago

I’m intrigued by the fact that the press release focuses on cryptomining, specifically, but also suggests that the issue has to do with fiduciary duty. Would Nvidia have been charged if they had failed to disclose a similar volume of sales to, say, scientific research labs? In other words, is this about the US’s policy towards (foreign?) crypto operations, or is it “just” about nvidia’s investors?

duxup 4y ago
Legally, yes it would be the same situation. If they were tracking research labs buying product and then got something wrong about it on their disclosure they'd be in the same situation. Legally it is all about the disclosure. Conspiracy minded crypto super fans might find it hard to believe but ultimately this is a small slap for a dorked up disclosure that can be easily avoided by Nvidia. The amount of crypto related purchases could be 100% and as long as Nvidia doesn't dork up disclosing that (or even saying what they know accurately) nothing happens here.
- omginternets 4y ago
  Yeah, that was my lay impression as well. The fact that it’s crypto seems largely immaterial, except maybe insofar as it’s a risky market.

bodhiandphysics 4y ago

Note that this is the announcement of a settlement. Nvidia agrees to pay 5.5 million, agrees to state the risk, and doesn’t admit to fault. No one is in serious trouble... nvidia should have indicated the risk, and didn’t... (probably because someone in legal fucked up). It’s not like investors didn’t know this was a risk!

drc500free 4y ago
Exactly. This is a light slap on the wrist for not including a two sentence blurb in the "risk factors" section that no sophisticated investor relies upon. But as a public company, they are supposed to make things clear for unsophisticated investors.
- KennyBlanken 4y ago
  No, it's for attributing the sales to gaming industry growth, not more volatile crypto.
- albertshin 4y ago
  In reality though I wonder how many of the "unsophisticated" investors have even opened a 10-K before investing... Let alone know what it is...
danuker 4y ago
> probably because someone in legal fucked up Isn't there a list containing every risk in the world, that one can paste into the form? Would that suffice?

kerng 4y ago

Interesting that the SEC didn't know while probably everyone in in the world knew at least since 2017 that graphics cards are hard to buy because of the cryptomining demand. Maybe one these things that are so obvious and hence not explicitly mentioned.

singlow 4y ago
Its not about whether the SEC knew. It is about whether nvidia properly incorporated that knowledge into their financial reporting. If nvidia knew how many of its cards were going to crypto then they needed to properly report that as a market segment that has different growth profiles than the standard gaming market. That way analysts could evaluate their projections more effectively.
- deleted 4y ago
  [deleted]

onphonenow 4y ago

Umm, wasn't this super well known? Every enthusiasts website had tons of tracking of card prices which were high because of... cryptomining. I mean, really entry level folks knew this. When crypto prices would go down a bunch of articles would pop up saying, hey, maybe supply for gaming will go up. I read these risk sections and 80% of the stuff is so overblown, boilerplate, repetitive, well known etc that it loses its usefulness.

xxpor 4y ago
This was from 2018, before card prices really exploded.
- onphonenow 4y ago
  That is a key point then ok.

KasianFranks 4y ago

[deleted]

birracerveza 4y ago
I'm the first one to complain about "crypto bad" articles, but this is simply related to crypto mining, nothing else. It's sure to attract the crypto detractors crowd to complain about how crypto is destroying the environment, though.
- microtherion 4y ago
  Even an investor who has full faith in the crypto industry might not want to invest in a company deriving significant revenue from selling GPU mining hardware, because if the long-announced switch of Ethereum from proof of work to proof of stake ever happens, that revenue might drop massively, as other chains seem much smaller and/or less lucrative: https://whattomine.com https://whattomine.com

Barrera 4y ago

This seems to be the crux of the case, which the document clarifies has been settled: > 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, these significant earnings and cash flow fluctuations related to a volatile business for investors to ascertain the likelihood that past performance was indicative of future performance. The SEC’s order also finds that NVIDIA’s omissions of material information about the growth of its gaming business were misleading given that NVIDIA did make statements about how other parts of the company’s business were driven by demand for crypto, creating the impression that the company’s gaming business was not significantly affected by cryptomining. Some commenters are asking where the line gets drawn for the responsibility of disclosure. From this document, the SEC is saying that if material risks are known and not disclosed, that's a red line they will take action on.

citizenpaul 4y ago

Its good the SEC is investigating poor disclosures. You know rather than the rampant fraudulent activity happening all across their supposed purview.

jenny91 4y ago

NVIDIA knew a lot of their GPUs were bought for crypto mining, but attributed those sales instead to growth in gaming, potentially misleading some investors (maybe they wanted to invest in gaming, not the very volatile crypto industry). This is the SEC doing their job, giving a public company a reminder to be honest about their disclosures. The fine is insignificant and nobody is in trouble. It has nothing to do with whether people could've read between the lines, whether NVIDIA has a duty to know what their products are used for, or anything like that. Just that they knew what was going on and told a small lie to bolster their finances. You should be able to read company financial disclosures and trust them.

mgh2 4y ago
What about AMD?
- ineedasername 4y ago
  AMD properly noted potential volatility due to cryptocurrency mining their SEC filings. [1] >The demand for our products depends in part on the market conditions in the industries into which they are sold.... for example, our GPU revenue has been affected in part by the volatility of the cryptocurrency mining market...If we are unable to manage the risks related to the volatility of the cryptocurrency mining market, our GPU business could be materially adversely affected. That's from their most recent one, but similar statements are in prior ones as well. [1] https://ir.amd.com/sec-filings/filter/quarterly-filings/content/0000002488-22-000078/amd-20220326.htm?TB_iframe=true&height=auto&width=auto&preload=false https://ir.amd.com/sec-filings/filter/quarterly-filings/cont...
  - paulmd 4y ago
    NVIDIA noted it too. This is about their earnings calls where they gave estimates of the magnitude of the crypto sales, and did what I consider (and really, most people who looked at it seriously) to be a massive massive undercount, by a factor of like 3-10x. AMD was underselling it too though (in 2017-2018 it was a huge factor, not so much this time) and they had a huge inventory overhang lasting years as well... ctrl-f "inventory" in their late-2018/early-2019 earnings call transcripts. https://www.fool.com/earnings/call-transcripts/2019/01/30/advanced-micro-devices-amd-q4-2018-earnings-confer.aspx https://www.fool.com/earnings/call-transcripts/2019/01/30/ad...

zzleeper 4y ago

I just bought an RX 6600, for about $320. It's definitely not the latest GPU, not even close, but it made me realize something: Because of the GPU shortage, game makers couldn't rely on enough users having the best/latest card, so now there is not much point in having, say, a RTX 3090, where a 3080 performs as well for most non-mining purposes. Now, what if crypto enters a crisis (or ETH switches to PoS, which is less likely), and then the next generation of GPUs has almost no demand at the inflated triple-digit prices. That's going to be a huge hit to its market cap

mtoner23 4y ago
Eth is switching to PoS https://ethereum.org/en/upgrades/merge/ https://ethereum.org/en/upgrades/merge/
- dehugger 4y ago
  When? The time frame on that page is "eventually" which more or less equates to "perhaps, someday". Until a date is committed to and the merge actually occurs Ethereum proof of stake will never be taken seriously.
  - okwubodu 4y ago
    There’s more than 25 billion on the line with the merge so it’s not like they’re stalling for fun.
- tromp 4y ago
  Probably sometime in the next 5 years...
vmception 4y ago
> and then the next generation of GPUs has almost no demand at the inflated triple-digit prices. That's going to be a huge hit to its market cap NVIDIA ('s distributors) still sale at the lower MSRP (right?) so the risk for them is people not buying them at all, which seems more farfetched maybe I'm wrong, but I thought the true price was shown by what scalpers could fetch, which means the places the scalpers buy from had the wrong lower price

ineedasername 4y ago

Well, I know who is going to be the target of Matt Levine's next "everything is securities fraud" posting.

whywhywhywhy 4y ago

If running a GPU 100% to mine crypto is a problem, why wouldn't running the same GPU at 100% to simulate a virtual cowboy world not be a problem?

stjohnswarts 4y ago

Nvidia is now Big GPU? lol

jokoon 4y ago

I wonder if there is a conspiracy of big GPU trying to promote crypto currencies. Although I wonder if you can absorb the cost of an expensive GPU+power bill by reselling bitcoins, because I'm not sure it's profitable.

mrtweetyhack 4y ago