NVIDIA Fined $5.5 Million For “Inadequate Disclosures” About Cryptomining

The U.S. Securities and Exchange Commission announced they had settled charges against technology company NVIDIA Corporation for inadequate disclosure concerning the impact of crypto mining on the company’s gaming business. The press release includes the following:

“The SEC’s order finds that, during consecutive quarters in NVIDIA’s fiscal year 2018, the company failed to disclose that crypto mining was a significant element of its material revenue growth from the sale of its graphics processing units (GPUs) designed and marketed for gaming. Cryptomining is the process of obtaining crypto rewards in exchange for verifying crypto transactions on distributed ledgers. As demand for and interest in crypto rose in 2017, NVIDIA customers increasingly used its gaming GPUs for cryptomining.

“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….”

CNBC reported that NVIDIA will pay $5.5 million as part of a settlement with the SEC that it did not properly inform investors about how cryptocurrency miners were stoking demand for its graphics cards. According to CNBC, NVIDIA failed to disclose how cryptocurrency mining drove growth in the second and third quarters of 2018, which took place in 2017, the SEC said in a filing.

In 2021, NVIDIA announced a change to their RTX 30 series cards. The purpose was to nerf them so that the card would be less desirable to people who use them for mining cryptocurrency. According to NVIDIA, their GeForce RTX 3060 graphic cards were shipped with a reduced Ethereal hash rate.

At the time, I wrote that this change could make it easier for gamers to not only obtain NVIDIA cards, but also to use them for their intended purpose – playing video games. I remember people being very frustrated that they could not find the NVIDIA cards they wanted in stores – and that the price for them (when found) was too high.

ArsTechnica reported about the aftermath of the 2017-era crypto bubble, when NVIDIA missed earnings expectations and lost billions in stock market value because of a collapse in demand for GPUs. The popping of that cryptomining bubble also led to a glut of inventory that retailers had trouble moving, even after price cuts.