Court Dismisses NVIDIA Securities Suit

On Tuesday, Judge Haywood S. Gilliam, Jr. of the Northern District of California issued an order granting “multinational technology company” NVIDIA Corporation’s motion to dismiss and denying its motion to strike in the consolidated securities class action brought against it and several officers and executives.

According to the order, in the initial consolidated class-action complaint, the plaintiffs alleged that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The court dismissed the complaint with leave to amend, after which they filed their First Amended Complaint. NVIDIA asked the court to dismiss the plaintiffs’ amended complaint and to strike the allegations.  The lawsuit was brought “‘on behalf of all others who purchased or otherwise acquired common stock of NVIDIA Corporation between May 10, 2017, and November 14, 2018, inclusive.”

The order noted that NVIDIA “produces graphic processing units (GPU), (which are) types of processors that are used in rendering computer graphics.” Accordingly, “NVIDIA’s GPU business is reported by market platforms, two of which are at issue in this case … The first platform is chips designed for videogames – the Gaming platform.” The second is the Original Equipment Manufacturer & IP, which has chips for devices like phones and tablets. Reportedly, during the Class Period, NVIDIA “reported skyrocketing revenues in its core Gaming segment.” The plaintiffs alleged that NVIDIA made false and misleading statements about its finances, which allegedly “‘concealed from investors the enormous risk to NVIDIA’s financial results posed by the Company’s outsized exposure to crypto-mining.” The plaintiffs claimed that when the truth was revealed, “NVIDIA’s stock price fell and the putative class members suffered financial losses.”

Regarding the motion to strike, NVIDIA argued that a newly identified confidential witness “disavow(ed) key statements attributed to him” in the amended complaint. As a result, these “discredited allegations are ‘unreliable and immaterial’ and should thus be stricken.” Meanwhile, the plaintiffs asserted that the court cannot consider the witness’ “recanting declaration.” The court noted that the “crux of the parties’ disagreement thus revolves around the appropriateness of resolving this issue at the motion to dismiss stage.” The court finds, in agreement with the plaintiffs, that “it is improper to resolve factual disputes concerning (the witness’s) account at this stage,” also pointing to the fact that the plaintiffs “cite these statements in support of their scienter arguments.” The court claimed that there are factual disputes between the parties about the witness’s statements, thus it denied the motion to strike.

The court also considered NVIDIA’s motion to dismiss, alleging that the plaintiffs failed to adequately plead falsity, scienter, and control person liability. Specifically, the court claimed that the plaintiffs’ allegations fail to raise a strong inference of scienter because the plaintiffs “do not adequately tie the specific contents of any of these data sources to particular statements so as to plausibly show that the Defendant who made each specified statement knowingly or recklessly spoke falsely.” Additionally, the court found that the plaintiffs have not sufficiently demonstrated that the core operations theory applies.

The court added that since the plaintiffs were previously granted leave to amend and
“subsequently failed to add the requisite particularity,” leave to amend in this instance is “unwarranted.” Therefore, the court granted NVIDIA’s motion to dismiss without leave to amend and denies its motion to strike.

NVIDIA is represented by Cooley. The lead plaintiffs and class are represented by Kessler Topaz Meltzer & Check, as well as Bernstein Litowitz Berger & Grossmann.