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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

• philipwhiuk 5y 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 5y 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 5y 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 5y 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 5y 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 5y 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 5y 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 5y 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 5y ago
      I don't think the parent was implying they were.
      • erikerikson 5y 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 5y 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 5y 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 5y 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 5y ago
      No, the requirement isn’t perfection but NVIDA is charged with failing to disclose significant risk that they where aware of.
    • gpderetta 5y 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 5y ago
        Right. And not just disclose it as a fact, but incorporate it into their projects and risk outlooks.
    • JackFr 5y ago
• TrueDuality 5y 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 5y 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 5y ago
      >anyone with a brain knew the cards weren’t going to gamers. you answered this yourself.
    • kelnos 5y 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 5y 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 5y 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 5y 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 5y 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 5y ago
  Heck, they modified their driver software to make reduce bitcoin mining efficiency.
• spamizbad 5y 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 5y 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 5y 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 5y 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 5y 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.