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Nvidia faces securities fraud suit on product failures
By Suzanne Deffree, Managing Editor, News -- Electronic News, 9/11/2008
A securities fraud class action lawsuit has been filed against Nvidia Corp, alleging the GPU maker violated US securities laws by concealing the existence of a heat-cycling product failure issues in its chips for at least eight months.
The complaint, filed by New York-based law firm Shalov Stone Bonner & Rocco LLP in the District Court for the Northern District of California, alleges Nvidia "issued a series of misrepresentations and omissions that actively concealed and failed to disclose the failure rates of the company's mobile video adapters the impact of these defects on the company’s financial condition and results and future business prospects."
The complaint was filed on behalf of investors who purchased or otherwise acquired the company's stock between November 8, 2007 and July 2. Specifically named in the complaint as defendants are Nvidia CEO Jen-Hsun Huang (pictured) and CFO Marvin D. Burkett.
Nvidia acknowledged the product issues after market close on July 2. At that time, the Santa Clara-based company significantly cut estimates for its fiscal Q2 2009, ended July 27, and announced a $150 million to $200 million charge for the quarter on the failure issues.
The company's stock, NVDA, then plunged from its July 2 close of $18.03 to close at $12.49 on July 3. After recovering slightly to $14.08 on August 20, NVDA once again turned downward and closed at $10.82 on Wednesday. Suffering a near 50% loss compared to its $19.04 close price six months ago on March 11, the stock was trading at $10.40 as of 12:20 eastern today.
"The truth is that, at least as early as November 2007, Nvidia and the other defendants [Haung and Burkett] have known about these unprecedented failure rates, as well as their 'root causes,'" the complaint reads and further states that at a Citigroup technology conference last week Michael Hara, Nvidia's VP of investor relations, said that the company began troubleshooting the issues in August 2007.
In an effort to offer further evidence that Nvidia was aware of the issues before its July announcement, the complaint goes on to claim that Nvidia customer Hewlett-Packard began issuing a hardware BIOS update in its laptops to avoid overheating in November 2007.
In addition to this suit, Nvidia recently faced protestors at its Nvision event in August who called on the company to take responsibility for the heat issues.
Nvidia did not return Electronic News calls for comment.
