Case 4:19-cv-00876-HSG Document 1 Filed 02/19/19 Page 1 of 40
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`
`
`Joel E. Elkins (SBN 256020)
`jelkins@weisslawllp.com
`WEISSLAW LLP
`9107 Wilshire Blvd., Suite 450
`Beverly Hills, CA 90210
`Telephone: 310/208-2800
`Facsimile: 310/209-2348
`
`Plaintiff’s Counsel
`
`
`
`
`
`
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
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`
`
`Case No.
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`
`VERIFIED SHAREHOLDER
`DERIVATIVE COMPLAINT
`
`JURY TRIAL DEMANDED
`
`
`THE BOOTH FAMILY TRUST, derivatively
`on behalf of NVIDIA CORPORATION,
`
`Plaintiff,
`
`v.
`
`K.
`ROBERT
`HUANG,
`JEN-HSUN
`BURGESS, TENCH COXE, PERSIS S.
`DRELL, JAMES C. GAITHER, DAWN
`HUDSON, HARVEY C. JONES MICHAEL
`G. McCAFFERY, MARK L. PERRY, A.
`BROOKE SEAWELL, MARK A. STEVENS,
`and COLLETTE M. KRESS,
`
`Defendants,
`
`
`and
`NVIDIA CORPORATION,
`
`Nominal Defendant.
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`
`
`
`
`VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT
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`Plaintiff the Booth Family Trust (“Plaintiff”), through its undersigned counsel, brings this
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`action derivatively on behalf of Nominal Defendant NVIDIA Corporation (“NVIDIA” or the
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`“Company”) against certain of its current and former officers and directors. Plaintiff alleges upon
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`VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT
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`Case 4:19-cv-00876-HSG Document 1 Filed 02/19/19 Page 2 of 40
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`personal knowledge as to itself and its own acts, and as to all other matters upon information and
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`belief based upon the substantial investigation of its counsel, as follows:
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`NATURE OF THE ACTION
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`1.
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`NVIDIA created the graphics processing unit (“GPU”). The Company’s gaming
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`GPUs have long been recognized as the pillar of the Company’s product line and strategy, accounting
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`for much of its revenues. NVIDIA’s Directors and Officers have long been on notice of the
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`importance of the GPU to the Company, and its short life cycle—rapidly becoming obsolete based
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`upon technological advances.
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`2.
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`NVIDIA’s GPUs have also become popular with cryptocurrency miners. In public
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`filings, press releases and quarterly conference calls with financial analysts, the Company’s senior
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`officers highlighted the success of NVIDIA’s GPUs in gaming, while at the same time downplaying
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`its reliance on the use of GPUs in cryptocurrency mining. Defendants called the use of NVIDIA
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`GPUs for cryptocurrency mining a mere “bonus” that would not detract from its core gaming
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`business.
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`3.
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`From at least August 10, 2017 through at least November 15, 2018 (the “relevant
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`period”), NVIDIA’s officers and directors did not disclose that the Company’s reliance on the
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`cryptocurrency market was causing an oversupply of GPUs. Likewise, the Individual Defendants
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`(defined below) downplayed the financial repercussions this oversupply would have on NVIDIA,
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`claiming that any reduction in cryptocurrency demand for GPUs would be more than met by a demand
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`for gaming. When cryptocurrency miners stopped buying GPU units due to a slowdown, NVIDIA
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`found itself awash with GPUs that were rapidly becoming worthless. Ultimately, the Company was
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`forced to lower its revenue guidance to reveal that it had a backlog of inventory for GPUs, an increase
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`Case 4:19-cv-00876-HSG Document 1 Filed 02/19/19 Page 3 of 40
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`of 30 percent from the previous quarter. NVIDIA’s financial condition has now been negatively
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`impacted by this backlog of inventory due to the slowdown in the cryptocurrency market.
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`4.
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`In the wake of these revelations, class action lawsuits have been filed against NVIDIA
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`and certain of its directors and officers, charging them with fraud in making false and misleading
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`statements and omissions. The Company will be forced to expend substantial sums defending itself
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`in those actions and may be further materially damaged by a settlement of those actions or if a verdict
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`is rendered against it at trial.
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`5.
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`While NVIDIA and its shareholders have been damaged by its directors’ and officers’
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`failures to manage these risks, the Company’s officers have profited. Indeed, while they were feeding
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`false and misleading information into the market, causing the Company’s stock price to be artificially
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`inflated, they were selling their own shares at those very artificially inflated prices. Moreover, in
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`furtherance of their scheme to inflate the stock price, these directors and officers caused the Company
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`to waste its assets repurchasing its stock at artificially inflated prices.
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`6.
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`The Individual Defendants’ fiduciary breaches, failure to implement and maintain an
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`effective system of internal controls, acts of mismanagement, and misconduct have caused, and will
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`continue to cause, material damage to NVIDIA and its shareholders. Plaintiff brings this derivative
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`action to: a) recover damages from the Individual Defendants (defined below) for the benefit of the
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`Company; and b) to require the Company to reform and improve its corporate governance practices
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`and internal controls to protect NVIDIA and its shareholders from a repetition of the damaging events
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`described herein.
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`7.
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`Plaintiff did not make a demand upon the NVIDIA Board of Directors (the “Board”)
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`prior to instituting this lawsuit since making such a demand would be a futile and wasteful act and it
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`is, therefore, excused. The Board is neither disinterested nor independent. Rather, the directors face
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`Case 4:19-cv-00876-HSG Document 1 Filed 02/19/19 Page 4 of 40
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`a substantial likelihood of liability due to their numerous breaches of fiduciary duties described
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`herein.
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`PARTIES
`
`8.
`
`Plaintiff, the Booth Family Trust, has continuously held NVIDIA shares since May
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`13, 2013, was a shareholder at the time of the transactions complained of herein, and will continue to
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`hold NVIDIA shares throughout the pendency of this action.
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`9.
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`Nominal Defendant NVIDIA is a corporation duly organized and existing under the
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`laws of the State of Delaware maintaining its principal offices at 2788 San Tomas Expressway, Santa
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`Clara, California. NVIDIA is a technology company that invented the graphics processing unit, or
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`“GPU.” NVIDIA stock trades on the NASDAQ (“Nasdaq”) under the ticker symbol “NVDA.”
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`10.
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`Defendant Jen-Hsun Huang (“Huang”) co-founded NVIDIA in 1993 and has since
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`served as President, CEO, and a member of the Board. In 2018, NVIDIA paid Huang the following
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`compensation:
`
`Fiscal
`Year
`
`Salary
`
`Stock
`Awards
`
`$999,985 $9,787,985
`
`Non-Equity
`Incentive Plan
`Compensation
`$2,200,000
`
`All Other
`Compensation
`
`Total
`
`$5,562
`
`$12,993,532
`
`2018
`
`Defendant Robert K. Burgess (“Burgess”) has served as an NVIDIA director since
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`11.
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`2011. Burgess serves on the Board’s Compensation Committee. In 2018, NVIDIA paid Burgess the
`
`following compensation:
`
`Fiscal Year
`
`2018
`
`Fees Earned
`in Cash
`$75,000
`
`Stock Awards
`
`Total
`
`$284,066
`
`$359,066
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`Case 4:19-cv-00876-HSG Document 1 Filed 02/19/19 Page 5 of 40
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`12.
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`Defendant Tench Coxe (“Coxe”) has served as an NVIDIA director since 1993.
`
`Burgess serves on the Board’s Compensation Committee. In 2018, NVIDIA paid Coxe the following
`
`compensation:
`
`Fiscal Year
`
`2018
`
`Fees Earned
`in Cash
`$75,000
`
`Stock Awards
`
`Total
`
`$284,066
`
`$359,066
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`Defendant Persis S. Drell (“Drell”) has served as an NVIDIA director since 2015.
`
`
`13.
`
`Burgess serves on the Board’s Compensation Committee. In 2018, NVIDIA paid Drell the following
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`compensation:
`
`Fiscal Year
`
`2018
`
`Fees Earned
`in Cash
`$75,000
`
`Stock Awards
`
`Total
`
`$284,066
`
`$359,066
`
`Defendant James C. Gaither (“Gaither”) has served as an NVIDIA director since 1998.
`
`
`14.
`
`Gaither serves on the Board’s Nominating and Corporate Governance Committee. In 2018, NVIDIA
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`paid Gaither the following compensation:
`
`Fiscal Year
`
`2018
`
`Fees Earned
`in Cash
`$75,000
`
`Stock Awards
`
`Total
`
`$284,066
`
`$359,066
`
`Defendant Dawn Hudson (“Hudson”) has served as an NVIDIA director since 2013.
`
`
`15.
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`Hudson serves on the Board’s Audit Committee. In 2018, NVIDIA paid Hudson the following
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`compensation:
`
`Fiscal Year
`
`2018
`
`Fees Earned
`in Cash
`$75,000
`
`Stock Awards
`
`Total
`
`$284,066
`
`$359,066
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`Defendant Harvey C. Jones (“Jones”) has served as an NVIDIA director since 1993.
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`16.
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`Jones serves on the Board’s Compensation Committee and Nominating and Corporate Governance
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`Committee. In 2018, NVIDIA paid Jones the following compensation:
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`Case 4:19-cv-00876-HSG Document 1 Filed 02/19/19 Page 6 of 40
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`17.
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`Fiscal Year
`
`2018
`
`Fees Earned
`in Cash
`$75,000
`
`Stock Awards
`
`Total
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`$284,066
`
`$359,066
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`Defendant Michael G. McCaffery (“McCaffery”) has served as an NVIDIA director
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`since 2015. McCaffery serves on the Board’s Audit Committee. In 2018, NVIDIA paid McCaffrey
`
`the following compensation:
`
`Fiscal Year
`
`2018
`
`Fees Earned
`in Cash
`$75,000
`
`Stock Awards
`
`Total
`
`$284,066
`
`$359,066
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`Defendant Mark L. Perry (“Perry”) has served as an NVIDIA director since 2005.
`
`
`18.
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`Perry serves on the Board’s Audit Committee and Nominating and Corporate Governance
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`Committee. In 2018, NVIDIA paid Perry the following compensation:
`
`Fiscal Year
`
`2018
`
`Fees Earned
`in Cash
`$75,000
`
`Stock Awards
`
`Total
`
`$284,066
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`$359,066
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`Defendant A. Brooke Seawell (“Seawell”) has served as an NVIDIA director since
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`19.
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`1997. Seawell serves on the Board’s Compensation Committee. In 2018, NVIDIA paid Seawell the
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`following compensation:
`
`Fiscal Year
`
`2018
`
`Fees Earned
`in Cash
`$75,000
`
`Stock Awards
`
`Total
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`$284,066
`
`$359,066
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`Defendant Mark A. Stevens (“Stevens”) has served as an NVIDIA director since 2008.
`
`
`20.
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`Stevens serves on the Board’s Audit Committee and Nominating and Corporate Governance
`
`Committee. In 2018, NVIDIA paid Stevens the following compensation:
`
`Fiscal Year
`
`2018
`
`Fees Earned
`in Cash
`$75,000
`
`Stock Awards
`
`Total
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`$284,066
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`$359,066
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`Case 4:19-cv-00876-HSG Document 1 Filed 02/19/19 Page 7 of 40
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`21.
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`Defendant Collette M. Kress (“Kress”) has served as NVIDIA’s Executive Vice
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`President (“EVP”) and Chief Financial Officer (“CFO”) since 2013. In 2018, NVIDIA paid Kress
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`the following compensation:
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`Fiscal
`Year
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`Salary
`
`Stock
`Awards
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`2018
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`$899,120 $3,327,973
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`Non-Equity
`Incentive Plan
`Compensation
`$600,000
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`All Other
`Compensa
`tion
`$6,662
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`Total
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`$4,833,715
`
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`22.
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`Defendants.”
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`The Defendants referenced in ¶¶10-21 are collectively referred to as the “Individual
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`JURISDICTION AND VENUE
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`23.
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`This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1331 in that the
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`Complaint states a federal question. The Court has supplemental jurisdiction over the state law claims
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`asserted herein pursuant to 28 U.S.C. § 1367(a).
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`24.
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`This Court has general jurisdiction over each named Defendant who is a resident of
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`California. Additionally, this Court has specific jurisdiction over each named non-resident Defendant
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`because these Defendants maintain sufficient minimum contacts with California to render jurisdiction
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`by this Court permissible under traditional notions of fair play and substantial justice. NVIDIA
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`maintains its United States headquarters in California, and because the allegations contained herein
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`are brought derivatively on behalf of NVIDIA, Defendants’ conduct was purposefully directed at
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`California. Exercising jurisdiction over any non-resident Defendant is reasonable under these
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`circumstances.
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`25.
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`Venue is proper in this District under 28 U.S.C. § 1391 because: (a) NVIDIA
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`maintains its principal executive offices in this District; (b) one or more of the Defendants resides in
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`this District; (c) a substantial portion of the transactions and wrongs complained of herein—including
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`Case 4:19-cv-00876-HSG Document 1 Filed 02/19/19 Page 8 of 40
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`the Individual Defendants’ primary participation in the wrongful acts—occurred in this District; and
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`(d) the Individual Defendants have received substantial compensation in this District by doing
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`business here and engaging in numerous activities that had an effect in this District.
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`INDIVIDUAL DEFENDANTS’ DUTIES
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`26.
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`Due to their positions as directors and officers of NVIDIA, and because of their ability
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`to control the business and corporate affairs of NVIDIA, the Individual Defendants owed NVIDIA
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`and its stockholders, among other duties, the fiduciary obligations of loyalty, due care and good faith.
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`The Individual Defendants were, and are, required to act in furtherance of the best interests of
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`NVIDIA and its stockholders, which, at a minimum, requires that they use their utmost abilities to
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`manage NVIDIA in an honest and lawful manner. The Individual Defendants were, and are, required
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`to provide good faith oversight of the Company’s operations, particularly with respect to the most
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`significant risks the Company faces, as well as an affirmative obligation to ensure, at the very least,
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`that the Company has systems designed to maintain compliance with the laws and regulations in the
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`countries where it operates. A fiduciary of a corporation is not loyally and in good faith discharging
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`his or her fiduciary duties if, knowing that the company is noncompliant with mandatory legal
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`obligations governing the company’s core business, he or she does not take affirmative action to
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`correct the deficiency.
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`27.
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`Corporations are managed by or under the direction of the board. A director’s
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`meaningful and good faith oversight is particularly important when, as here, the board knows that
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`management has financial incentives to: (a) not comply with the law; and (b) to treat such non-
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`compliance as a business risk that, if realized, will be compensated by the company. Directors acting
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`in good faith to ensure compliance with the law may, for example, impose performance standards on
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`executives for measuring their efforts in ensuring compliance with the company’s mandatory legal
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`Case 4:19-cv-00876-HSG Document 1 Filed 02/19/19 Page 9 of 40
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`obligations, hold executives accountable for continued non-compliance and continued failure to
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`implement an effective control system, and seek outside review of the company’s control systems.
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`28. When management has demonstrated an inability and/or unwillingness to bring a
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`corporation into compliance with mandatory legal obligations, directors have an affirmative
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`obligation to protect the company and its stockholders. Directors who are informed that management
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`is nevertheless incapable and/or unwilling to implement compliant business practices that do not run
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`afoul of laws, rules and regulations, are failing to act in the face of their known duty to stop illegal
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`conduct and protect the company and its stockholders.
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`29.
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`Because of their positions of control and authority as directors of NVIDIA, the
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`Individual Defendants were able to, and did, directly and/or indirectly, exercise control over the
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`wrongful acts complained of herein. Through their directorial positions within NVIDIA, each
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`Individual Defendant had access to information regarding the improper business practices of NVIDIA
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`described herein.
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`30.
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`The conduct of the Individual Defendants complained of herein involves a culpable
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`violation of their fiduciary duties, the absence of loyalty and good faith on their part, and a knowing,
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`reckless and grossly negligent disregard for their duties to the Company and its shareholders. The
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`Individual Defendants were aware, or should have been aware, that those violations, the absence of
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`good faith, and the reckless disregard of duties posed a risk of serious injury to the Company.
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`31.
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`Aside from their legally imposed duties as officers and/or directors of a publicly traded
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`company, the Individual Defendants were also subject to particularized duties pursuant to specific
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`policies in effect at NVIDIA.
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`A. The Code of Conduct
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`32.
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`According to Defendant Huang, NVIDIA’s Code of Conduct (the “Code”) is a guide
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`to how all Company employees must conduct themselves in everything they do. “It describes the
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`principles that apply to how we act toward customers, partners, competitors, vendors, government
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`regulators, stockholders, fellow employees, as well as the community at large.”
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`33.
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`The NVIDIA Code of Conduct charges the Individual Defendants with safe-guarding
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`the Company’s assets, which includes preparing full, fair, and accurate reports filed with government
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`agencies, such as the SEC.
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`34.
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`The Company further charges employees with avoiding improper insider trading:
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`“We don’t trade NVIDIA stock while we are aware of material, non-public information or outside of
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`designated trading periods.”
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`Additionally, employees are implored to cooperate with ongoing investigations:
`35.
`Unless otherwise provided by law, we’re required to cooperate with internal and
`external investigations and to provide complete, accurate, and truthful information.
`Our Legal Department responds to litigation or requests from governmental or
`other external agencies. We never alter or destroy records in response to
`anticipated or actual litigation, investigations, or audits. We should not discuss an
`investigation with anyone unless instructed.
`
`36.
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`Any violations of the Code are to be reported to management, human resources, a
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`legal representative, or NVIDIA Compliance. All complaints must be responded to promptly through
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`an email to NVIDIA Compliance. The Compliance Committee’s duties include:
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`[I]nvestigat[ing] reports of suspected violations of Our Code promptly, thoroughly,
`and in accordance with our legal obligations. We may determine that remedial
`action (such as training, enhanced controls, coaching, or communication) or
`disciplinary action (including termination of employment) is necessary.
`
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`B. The Corporate Responsibility Directive
`
`37.
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`The Individual Defendants are responsible for the development and implementation
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`of NVIDIA’s Corporate Responsibility Directive (the “Directive”).
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`38.
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`The Individual Defendants must abide by the duties imposed by the Directive, which
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`include:
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`• Maintaining the highest standards of business ethics and integrity;
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`• Compliance with all applicable laws and regulations of the countries in which the
`Company operates; and
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`• Using a management system approach including risk assessments, audits and
`continuous improvement to achieve these objectives.
`
`
`C. The Audit Committee Charter
`
`39.
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`NVIDIA’s Audit Committee is appointed to ensure that the Board has implemented
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`and maintained sufficient internal controls over the Company’s financial reporting. Further, the Audit
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`Committee Charter imposes the following, among other, responsibilities on its members:
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`• Review financial statements to be included in the Company’s Annual Report, such
`as risk factors, and the adequacy of such disclosures;
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`In consultation with the management, the internal auditors and the auditors, review
`the Company’s guidelines and policies with respect to risk assessment, risk
`management and internal financial and disclosure controls;
`
`•
`
` •
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` Review with management and the auditors, as appropriate, earnings press releases,
`as well as the substance of financial information and earnings guidance provided to
`analysts and ratings agencies;
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` •
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` Review periodically, either individually or as a committee and discuss with
`management and the auditors, as appropriate, the Company’s financial disclosures;
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`• Review with management, the internal auditors and the auditors significant issues
`that arise regarding accounting principles and financial statement presentation the
`potential impact of regulatory and accounting initiatives, any off-balance sheet
`structures and any other significant reporting issues and judgments;
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`• Report to the Board with respect to material issues that arise regarding the quality
`or integrity of the Company’s financial statements and the Company’s compliance
`with legal or regulatory requirements.
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`VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT
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`Case 4:19-cv-00876-HSG Document 1 Filed 02/19/19 Page 12 of 40
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`
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`SUBSTANTIVE ALLEGATIONS
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`A. The Individual Defendants Have Long Known of the Materiality of NVIDIA’s
`Inventory to Its Financial Condition and Business Prospects
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`40.
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`In its Annual Report on Form 10-K filed with the SEC on February 28, 2018 for the
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`fiscal year ending January 31, 2018 (the “2018 10-K”), which was signed by all of the Individual
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`Defendants, the Company stated the following:
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`Our operating results have in the past fluctuated and may in the future
`fluctuate, and if our operating results are below the expectations of securities
`analysts or investors, our stock price could decline. Our operating results have in
`the past fluctuated and may in the future continue to fluctuate due to numerous
`factors. Therefore, investors should not rely on quarterly comparisons of our
`results of operations as an indication of our future performance.
`Factors, other than those described elsewhere in these risk factors, that could affect
`our results of operations in the future include, but are not limited to:
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`• our ability to achieve volume production of our next-generation products;
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`• our inability to adjust spending to offset revenue shortfalls due to the multi-
`year development cycle for some of our products and services;
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`•
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`the demand
`in
`fluctuations
`cryptocurrencies1;
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`for our products related
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`to
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`•
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`inventory write-downs.
`Inventory cost is computed on an adjusted standard basis, which
`approximates actual cost on an average or first-in, first-out basis. We charge cost
`of sales for inventory provisions to write down our inventory to the lower of
`cost or net realizable value or to completely write off obsolete or excess
`inventory. Most of our inventory provisions relate to the write-off of excess
`quantities of products, based on our inventory levels and future product
`purchase commitments compared to assumptions about future demand and
`market conditions.
`Situations that may result in excess or obsolete inventory include changes
`in business and economic conditions, changes in market conditions, sudden and
`significant decreases in demand for our products, inventory obsolescence
`because of changing technology and customer requirements, failure to estimate
`customer demand properly, or unexpected competitive pricing actions by our
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`1 Emphasis added throughout, unless indicated otherwise.
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`VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT
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`Case 4:19-cv-00876-HSG Document 1 Filed 02/19/19 Page 13 of 40
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`competition. In addition, cancellation or deferral of customer purchase orders
`could result in our holding excess inventory.
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`The overall net effect on our gross margin from inventory provisions and
`sales of items previously written down was insignificant in fiscal years 2018 and
`2017 and an unfavorable impact of 1.6% in fiscal year 2016. The charges we took
`to cost of sales for inventory provisions during these fiscal years were
`primarily related to the write-off of excess quantities of products whose
`inventory levels were higher than our updated forecasts of future demand for
`those products. As a fabless semiconductor company, we must make
`commitments to purchase inventory based on forecasts of future customer demand.
`In doing so, we must account for our third-party manufacturers’ lead times and
`constraints. We also adjust to other market factors, such as product offerings and
`pricing actions by our competitors, new product transitions, and macroeconomic
`conditions - all of which may impact demand for our products.
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`The ramifications to NVIDA posed by a failure to adapt to ongoing trends in the
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`41.
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`market are expressly set out in the 2018 10-K :
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`If we fail to meet the evolving needs of our markets, or identify new
`products, services or technologies, our revenue and financial results may be
`adversely impacted.
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`We have created GPU-based visual and accelerated computing platforms
`that address four large markets: Gaming, Professional Visualization, Datacenter,
`and Automotive. These markets often experience rapid technological change,
`changes
`in customer requirements, new product
`introductions and
`enhancements, and evolving industry standards. Our success depends on our
`ability to identify these emerging industry changes and to develop new (or
`enhance our existing) products, services and technologies that meet the
`evolving needs of these markets. Such activities may require considerable
`technical, financial, compliance, sales and marketing investments. We currently
`devote significant resources to the development of technologies and business
`offerings in markets where we have a limited operating history, such as the
`automotive and datacenter markets, which presents additional risks to our business.
`We must also continue to develop the infrastructure needed to appropriately scale
`our business in these areas, including customer service and customer support. We
`also must meet customer safety and compliance standards, which are subject to
`change. Additionally, we continue to make considerable investments in research
`and development, which may not produce significant revenue for several years, if
`at all. If our investments are unsuccessful and we fail to develop new products,
`services and technologies, or if we focus on technologies that do not become
`widely adopted, our business, revenue, financial condition and results of
`operations could be adversely affected. We cannot assure you that our strategic
`direction will result in innovative products and technologies that provide value to
`our customers, partners and ultimately, our shareholders. If we fail to anticipate
`-13-
`VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT
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`Case 4:19-cv-00876-HSG Document 1 Filed 02/19/19 Page 14 of 40
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`
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`the changing needs of our target markets and emerging technology trends, or
`if we do not appropriately adapt that strategy as market conditions evolve, in
`a timely manner to exploit potential market opportunities, our business will
`be harmed.
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`B. The Defendants Fail to Disclose the Company’s Reliance on the Cryptocurrency
`Market
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`42.
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`On August 20, 2017, NVIDIA issued a press release announcing its financial results
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`for the second quarter of fiscal year 2018, ended July 30, 2017. The Company reported revenue of
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`$2.23 billion, up 56% from the same period one year earlier, and up 15% from the previous quarter.
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`In the press release, Defendant Huang attributed some of that growth to “[d]atacenter revenue
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`[increasing] more than two and a half times”; “[a] growing number of car and robot-taxi
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`companies…choosing our DRIVE PX self-driving computing platform”; and NVIDIA technology
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`being used to“ power the Nintendo Switch home gaming system.”
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`43.
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`On November 9, 2017, NVIDIA issued a press release announcing its financial results
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`for the third quarter of fiscal year 2018, ended October 29, 2017. The press release quoted Defendant
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`Huang as stating:
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`Our Volta GPU has been embraced by every major internet and cloud service
`provider and computer maker. Our new TensorRT inference acceleration platform
`opens us to growth in hyperscale datacenters. GeForce and Nintendo Switch are
`tapped into the strongest growth dynamics of gaming. And our new DRIVE PX
`Pegasus for robotaxis has been adopted by companies around the world. We are
`well positioned for continued growth.
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`44.
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`In a conference call with financial analysts held that same day, Defendant Kress
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`represented:
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`GPU sales also benefited from continued cryptocurrency mining. We met some of
`this demand with a dedicated board in our OEM business and a portion with
`GeForce GTX boards, though it’s difficult to quantify. We remain nimble in our
`approach to the cryptocurrency market. It is volatile, does not and will not
`distract us from focusing on our core gaming markets.
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`VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT
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`Case 4:19-cv-00876-HSG Document 1 Filed 02/19/19 Page 15 of 40
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`45.
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`During the conference call, Atif Malik of Citigroup Inc. asked: “[In the long term],
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`why should we think that crypto won’t impact the gaming demand in the future? If you can, just talk
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`about the steps NVIDIA has taken with respect to having a different load and all that.” In his
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`response, Defendant Huang, downplayed cryptocurrency mining’s importance to NVIDIA’s financial
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`condition and business prospects:
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`The longer-term way to think about that is this. Crypto is small for us, but not
`zero. And I believe that crypto will be around for some time, kind of like today.
`There will be new currencies emerging. Existing currencies would grow and value.
`The interest in mining these new emerging currency crypto algorithms that
`emerge are going to continue to happen. And so I think for some time, we’re
`going to see that crypto will be a small but not zero part of our business.
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`When you think about crypto in the context of our company overall, the thing
`to remember is that we’re the largest GPU computing company in the world.
`And our overall GPU business is really sizable. We have multiple segments…
`And you know of course that we have gaming. And so these different segments
`are all quite large and growing. And so my sense is that although crypto will
`be here to stay, it will remain small but not zero.
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`46.
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`Defendant Huang further represented on the conference call:
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`[T[he ideal platform for new emerging digital currencies turns out to be a CUDA
`GPU. And the reason for that is because there are several hundred million NVIDIA
`GPUs in the marketplace. If you want to create a new cryptocurrency algorithm,
`optimizing for our GPUs is really quite ideal. It’s hard to do. Therefore, you need
`a lot of computation to do it, and yet there’s enough GPUs in marketplace, it’s such
`an open platform, that the ability for somebody to get in and start mining is [a] very
`low [barrier] to entry. And so it’s the cycles of these digital currencies. And
`that’s the reason why I say that digital currency crypto usage of GPUs, crypto
`usage of GPUs will be small but not zero for some time. And it’s small because
`when it gets big, somebody will build a custom ASIC. But if somebody builds a
`custom ASIC, there will be a new emerging cryptocurre