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NVIDIA Faces Class Action Lawsuit at Supreme Court—What’s at Stake for Investors?

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NVIDIA

The U.S. Supreme Court is expected to consider a class action lawsuit filed by NVIDIA shareholders, as several justices expressed reservations about NVIDIA’s arguments.

On Wednesday, the U.S. Supreme Court heard arguments in the class action lawsuit brought by NVIDIA shareholders. NVIDIA’s legal team argued that the plaintiffs, led by a Swedish investment management firm, failed to meet the stringent pleading standards outlined in the Private Securities Litigation Reform Act (PSLRA) of 1995. The PSLRA was enacted to curb frivolous securities litigation.

Neal Katyal, one of NVIDIA’s attorneys, argued that the Ninth Circuit Court of Appeals had created a loophole by permitting the class action, which he claimed effectively bypassed the Private Securities Litigation Reform Act (PSLRA). He explained that, in cases of falling stock prices, plaintiffs can easily find an expert whose figures contradict the company’s public statements, assert that the company maintains records seen by executives, and align these records with the expert’s figures. Katyal pointed out that the plaintiffs’ complaint relied primarily on expert opinions without adequate company documentation.

When Justice Clarence Thomas inquired about the necessary elements for a plaintiff’s complaint to meet PSLRA standards, Katyal responded that it must specify what and when the CEO knew.

Justice Ketanji Brown Jackson expressed concerns over the case, noting that NVIDIA’s legal team demands concrete evidence from the plaintiffs and questioning the necessity of such explicit standards, like specific document contents.

Justice Sonia Sotomayor noted that the court typically refrains from approving certifications for error corrections.

An NVIDIA spokesperson stated that NVIDIA brought this case to the Supreme Court to protect shareholders and the economy from baseless lawsuits and looks forward to a reasonable resolution from the court.

The lawsuit stems from allegations by NVIDIA shareholders that between 2017 and 2018, CEO Jensen Huang concealed the fact that the company’s record revenue growth was primarily driven by increased GPU sales for cryptocurrency mining rather than gaming. They claim that inadequate revenue disclosures led to investment losses.

While a federal district court dismissed the lawsuit in 2021, the Ninth Circuit Court of Appeals later allowed the class action to proceed. NVIDIA has asked the Supreme Court to review the appellate court’s decision, arguing that it could open the floodgates to abusive speculative litigation.

theguru
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