- On May 6, 2022, the US Securities and Exchange Commission announced a settlement with chip manufacturer Nvidia Corporation regarding improper disclosure of the impact of cryptocurrency mining on its gaming business.
- The SEC has fined Nvidia US $ 5.5 million, and in the consecutive quarters of fiscal year 2018, Nvidia has made cryptocurrency mining a “significant factor” in revenue growth from the sale of chips designed for games. Claimed not to disclose. The SEC claimed that Nvidia knew that the increase in sales was primarily caused by cryptocurrency mining.
- The SEC has focused on the potential harm to investors from its decision to withhold information that appears to clearly point to cryptocurrency mining as the driving force behind the surge in game revenue.
- Nvidia’s settlement serves to warn public companies that regulatory agencies are keenly focused on disclosures related to the crypto market. Reporting companies whose business activities are affected by the cryptocurrency market or who engage in practices that help increase the availability of cryptocurrencies such as cryptocurrency mining, yield farming and staking are all significant risks to the business. And the impact must be identified and disclosed appropriately.
The recent boom in the cryptocurrency market has led to an increase in demand for cryptocurrencies, as cryptocurrency mining (the process of obtaining cryptocurrency rewards in exchange for validating transactions in a distributed ledger) requires considerable computing power. It corresponds. Nvidia Corporation designs and sells graphics processing units (“GPUs”) for use in gaming, which are also used to provide the calculations needed for mining on specific cryptocurrency networks. I can do it. Nvidia is one of the two major GPU manufacturers whose products are commonly used for cryptocurrency mining.
In a cease and desist order on May 6, 2022, the Securities and Exchange Commission announced that it would pay US $ 5.5 million to resolve a claim that Nvidia illegally masked sales that depended on cryptocurrency miners. .. Nvidia did not accept or deny the allegations.
This claim stems from Nvidia’s disclosure for the second consecutive quarter of fiscal year 2018. Meanwhile, Nvidia GPUs are becoming more and more popular in mining cryptocurrencies such as ether and Zcash. As the demand for cryptocurrencies increased in 2017, Nvidia’s customers are increasingly using gaming GPUs for cryptocurrency mining. Later, Nvidia launched a GPU product line dedicated to cryptocurrency mining known as “CMP” and sold it to large-scale mining operations.
This increase in demand for Nvidia’s gaming GPUs contributed to a significant increase in Nvidia’s revenue for the 2018 fiscal year. Nvidia’s gaming revenue (the way GPU sales are reported) increased 52% year-over-year in the second quarter of 2018. In the third quarter of 2018, it increased by 25% from the previous year.
During this time, Nvidia had information that “crypto mining was a key factor in the year-over-year growth in the company’s GPU revenue, according to the SEC. [g]Joined the GPU business segment during the relevant period. In addition, Nvidia analysts and investors regularly asked senior executives how cryptocurrency mining helped increase game revenue.
However, according to the SEC, the company did not fully disclose the role of cryptocurrency mining in the game revenue figures for these quarters. This is said to have given the misleading impression that these numbers reflect credible future growth, even though this may actually be due to demand from the volatile crypto market. increase. According to the SEC, these omissions “deprived investors of important information to evaluate a company’s business in key markets.”
Nvidia Did it We will disclose how cryptocurrency mining was affecting other segments of the business. In its quarterly report, the company identified cryptocurrency mining as the majority of OEM GPU sales within GPU reporting segment revenue. It claims that the SEC gave the impression that its gaming business was not significantly affected by cryptocurrency mining.
Nvidia’s research was conducted by the SEC Unit, which is responsible for protecting investors in the crypto market and protecting them from cyber-related threats that have nearly doubled in size recently.1
As the Nvidia Settlement indicates, reporting companies whose products, services or business activities are affected by the cryptocurrency market will identify and appropriately disclose all significant risks and implications for their business in the applicable SEC filing. is needed.
Related SEC guidance
The SEC has consistently expressed the view that cryptocurrency arrangements pose significant legal, technical and regulatory risks, all of which have a significant impact on a company’s business and financial position. Claims to give.For example, in late March 20222 The SEC states that there are “significant” technical, legal and regulatory risks associated with the protection of cryptocurrencies, and as a result, cryptocurrencies should be reflected as liabilities on a company’s balance sheet. We have issued guidance.
The SEC’s guidance and Nvidia enforcement measures show that the SEC is paying close attention to disclosures about the risks associated with cryptocurrencies, especially as cryptocurrencies are becoming more widely held. The Nvidia case is an important example of how cryptocurrencies are affecting the operations of more and more companies, a new risk that reporting companies must consider when analyzing their business and disclosure obligations. ..