SEC Charges Autonomous Vehicle Supplier NVIDIA with Shoddy Disclosures

Ken Zino of AutoInformed.com on SEC Charges Autonomous Vehicle Supplier NVIDIA with Shoddy Disclosures

Presumably aspects of this case apply to automakers who are vigorously pursuing and promoting autonomous vehicle technologies.

The Securities and Exchange Commission today announced it settled charges against technology company NVIDIA* Corporation for inadequate disclosures concerning the impact of cryptomining on the company’s gaming business. Without admitting or denying the SEC’s findings, NVIDIA agreed to a cease-and-desist order and to pay a $5.5 million penalty.

NVIDIA is a US-based artificial intelligence (AI) computing company that is a significant automotive supplier for an important building block in a network of several individual ECUs (Electronic control units)  used in automated and driverless vehicles. It goes by the name Drive Pegasus.

Automated vehicles are at heart computers on wheels. They need more computing power  than previously used if they are to negotiate city traffic automatically, with input sourced from an array of disparate sensors. In one alliance, designed to put highly automated and driverless vehicles on urban streets, Bosch and Daimler have specified the computing power necessary for their proposed system. (See AutoInformed.com on:  2018 S-Class Takes Driver Assistance Upward?) As a result, the two uber German companies have selected and signed an agreement with the U.S. AI computing company NVIDIA as a supplier for the artificial intelligence (AI) platform they think they need. AI, of course,  is an important building block in fully automated and driverless vehicles’ network of several individual ECUs (Electronic control units).

The SEC’s order finds that, during consecutive quarters in NVIDIA’s fiscal year 2018, the company failed to disclose that cryptomining 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,” the SEC said.

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 said.

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.

“NVIDIA’s disclosure failures deprived investors of critical information to evaluate the company’s business in a key market,” said Kristina Littman, Chief of the SEC Enforcement Division’s Crypto Assets and Cyber Unit. “All issuers, including those that pursue opportunities involving emerging technology, must ensure that their disclosures are timely, complete, and accurate.” Presumably aspects of this case apply to automakers who are vigorously pursuing autonomous vehicle technologies.

The SEC’s order finds that NVIDIA violated Section 17(a)(2) and (3) of the Securities Act of 1933 and the disclosure provisions of the Securities Exchange Act of 1934. The order also finds that NVIDIA failed to maintain adequate disclosure controls and procedures. The SEC’s investigation was conducted by Brent Wilner of the Crypto Assets and Cyber Unit and supervised by Diana Tani and Ms. Littman of the Crypto Assets and Cyber Unit.

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