The SEC has been too soft on companies violating securities laws and regulations; this case is no different.
Nvidia Corp settled an allegation that they did not properly disclose how much of their revenue relied on the cryptocurrency mining industry. In 2018, the company failed to show how significant their sales and growth came from cryptocurrency miners rather than gaming and other use cases.
NVDA earnings data – Source Yahoo Finance
The U.S. Securities and Exchange Commission stated Nvidia agreed to a cease and desist order and to pay a $5.5 million penalty without admitting or denying the findings.
According to the statement, “The SEC’s order finds that, during consecutive quarters in NVIDIA’s fiscal year 2018, the company failed to disclose that crypto mining 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 crypto-mining.”
Nvidia has been outspoken about not wanting to appeal to crypto miners but seems to rely on these miners to grow their business. If they had adequately disclosed this information, it would have given retail and institutional investors a more fair chance to invest. Unfortunately, only insiders and those familiar with using these GPUs for crypto mining would have benefitted because the disclosures were not properly issued.
The findings show 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.
It is unclear why the fine was so low and what the fine breakdown looked like. It is, however, clear that a $5.5 million fine to a $570 billion company is not going to be noticed at all and will not deter future mishandling of information and disclosures.
The SEC routinely issues minimal fines even in an economic environment of record revenues and profits by multi-billion and trillion-dollar companies. When will the SEC begin issuing penalties relative to the damages and confusion caused? When will the SEC take action that will deter companies from wanting to break securities laws and regulations?