Iron Workers Local 580 Joint Funds v. NVIDIA Corporation
| Citation | 522 F.Supp.3d 660 |
| Decision Date | 02 March 2021 |
| Docket Number | Case No. 18-cv-07669-HSG |
| Parties | IRON WORKERS LOCAL 580 JOINT FUNDS, et al., Plaintiffs, v. NVIDIA CORPORATION, et al., Defendants. |
| Court | U.S. District Court — Northern District of California |
Jonathan Daniel Uslaner, Bernstein Litowitz Berger & Grossman LLP, Los Angeles, CA, for Plaintiff Iron Workers Local 580 Joint Funds.
Andrew L. Zivitz, Pro Hac Vice, Eric K. Gerard, Pro Hac Vice, Matthew Leo Mustokoff, Pro Hac Vice, Nathan Alexander Hasiuk, Pro Hac Vice, Darren J. Check, Pro Hac Vice, Naumon A. Amjed, Pro Hac Vice, Ryan Thomas Degnan, Pro Hac Vice, Barroway Topaz Kessler Meltzer & Check, LLP, Radnor, PA, Nicole Temkin Schwartzberg, Jennifer Lauren Joost, Kessler Topaz Meltzer and Check LLP, San Francisco, CA, John Christopher Browne, Pro Hac Vice, Michael D. Blatchley, Pro Hac Vice, Bernstein Litowitz Berger Grossmann LLP, New York, NY, for Plaintiff E. Ohman J. or Fonder AB.
Andrew L. Zivitz, Pro Hac Vice, Eric K. Gerard, Pro Hac Vice, Matthew Leo Mustokoff, Pro Hac Vice, Nathan Alexander Hasiuk, Pro Hac Vice, Darren J. Check, Naumon A. Amjed, Ryan Thomas Degnan, Barroway Topaz Kessler Meltzer & Check, LLP, Radnor, PA, Jennifer Lauren Joost, Kessler Topaz Meltzer and Check LLP, San Francisco, CA, Jeroen Van Kwawegen, Pro Hac Vice, Michael D. Blatchley, Michael Madakacherry Mathai, Pro Hac Vice, John Christopher Browne, Bernstein Litowitz Berger Grossmann LLP, New York, NY, Jonathan Daniel Uslaner, Lauren Michelle Cruz, Bernstein Litowitz Berger & Grossmann LLP, Los Angeles, CA, for Plaintiff Stichting Pensionenonds PGB.
J. Alexander Hood, II, Jeremy A. Lieberman, Pomerantz LLP, New York, NY, Jennifer Pafiti, Pomerantz LLP, Los Angeles, CA, for Plaintiff Michael Oto.
John C. Dwyer, Brett Hom De Jarnette, Emily Brooke Harrington, Patrick Edward Gibbs, Samantha Anne Kirby, Cooley LLP, Claire Andrea McCormack, Skadden Arps Slate Meagher and Flom LLP, Palo Alto, CA, Sarah Malke Lightdale, Pro Hac Vice, Cooley LLP, New York, NY, for Defendants NVIDIA Corporation, Jensen Huang, Colette Kress.
Adam J. Zapala, Cotchett Pitre & McCarthy LLP, Burlingame, CA, for Defendants Oakland County Employees’ Retirement System, Oakland County Voluntary Employees’ Benefit Association Trust, Oakland County Employees’ Retirement System Trust.
John C. Dwyer, Patrick Edward Gibbs, Samantha Anne Kirby, Cooley LLP, Palo Alto, CA, for Defendant Jeff Fisher.
ORDER GRANTING MOTION TO DISMISS AND DENYING MOTION TO STRIKE
This is a consolidated securities class action brought by Plaintiffs E. Öhman J:or Fonder and Stichting Pensioenfonds PGB (collectively, "Plaintiffs") against Defendant NVIDIA Corporation ("NVIDIA" or "the Company") and Jensen Huang, co-founder and Chief Executive Officer, Colette Kress, Chief Financial Officer and Executive Vice President, and Jeff Fisher, Senior Vice President (collectively with NVIDIA, "Defendants"). In their initial complaint, Plaintiffs alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder. Dkt. No. 113 (Consolidated Class Action Complaint or "CCAC") ¶¶ 147–48. The Court dismissed the CCAC with leave to amend. Iron Workers Local 580 Joint Funds v. NVIDIA Corp. , 2020 WL 1244936 (N.D. Cal. Mar. 16, 2020) (" Order"). Plaintiffs filed an amended complaint that reasserts the same claims. Dkt. No. 149 (First Amended Complaint or "FAC").
Now pending before the Court is Defendants’ motion to dismiss the FAC. Dkt. Nos. 152 ("Mot."), 159 ("Opp."), 163 ("Reply"). Also pending before the Court is Defendants’ motion to strike allegations in the FAC. Dkt. Nos. 154, 161, 165. For the following reasons, the Court GRANTS Defendants’ motion to dismiss and DENIES Defendants’ motion to strike.
Plaintiffs bring this securities action individually and "on behalf of all others who purchased or otherwise acquired common stock of NVIDIA Corporation" between May 10, 2017, and November 14, 2018, inclusive (the "Class Period"). FAC at 1. The following facts are taken from the FAC and judicially noticeable documents.
NVIDIA "is a multinational technology company" that produces graphic processing units ("GPUs"), types of processors that are used in rendering computer graphics. FAC ¶ 1. NVIDIA's GPU business is reported by market platforms, two of which are at issue in this case. Id. ¶ 39. The first platform is chips designed for videogames—the Gaming platform—comprised primarily of the "GeForce" GPU product line. Id. ¶¶ 39–40. Original Equipment Manufacturer & IP ("OEM") is a second platform for chips designed for devices such as tablets and phones. Id. The gaming platform is NVIDIA's largest market: "[i]n every quarter of the Class Period, [g]aming revenues exceeded those of the four other segments combined." Id. ¶ 40. Generally, NVIDIA does not sell GPUs directly to the end users, but rather to device manufacturers, referred to as "partners," that incorporate the GPUs into graphic or video cards. Id. ¶ 42.
Beginning in 2017, prices in the cryptocurrency market began to climb, creating a demand for GPUs processing power. Id. ¶¶ 52, 62. Generally, cryptocurrencies refer to digital tokens exchanged peer-to-peer through transactions facilitated by the Internet. Id. ¶¶ 44, 47. These transactions are secured by modern cryptology and are reported on a "decentralized, immutable ledger." Id. ¶ 45. To maintain the integrity of this ledger, transactions must be verified by network participants "by first consolidating and encrypting the data of a group of transactions using a cryptographic technique of ‘hashing’—applying an algorithm to convert a string of text into an inscrutable, random sequence of numbers and letters." Id. ¶ 46. Users then compete to solve a "mathematical puzzle through laborious trial-and-error work performed by their computers" in order to verify transactions and receive a prize of the network's token—a process referred to as "crypto-mining," or simply "mining." Id. ¶¶ 46–47. This verification process requires significant processing power. Because the mining process has essentially become a computational race, miners turned to "GPUs, which could execute the computationally intensive work of crypto-mining hundreds of times faster" than CPUs in home computers. Id. ¶ 52. Due to the significant hardware costs, as well as electricity costs to run and cool the machines, crypto-mining is only profitable when prices for cryptocurrencies are above a certain level. Id. ¶¶ 54–55. Thus, "[b]ecause cryptocurrency prices have swung wildly over their short history," this has also led to a relatively volatile demand market for mining hardware, including GPUs. Id. ¶ 55.
In 2013, Advanced Micro Devices, Inc. ("AMD"), NVIDIA's primary GPU competitor, experienced this volatility when prices for Bitcoin, used on the most popular cryptocurrency network, skyrocketed. Id. ¶¶ 57–58. AMD's GPUs were in heavy demand during this time, "with processors that usually sold for $200-300 per unit selling for $600-800 at the height of the bubble." Id. ¶ 57. However, when prices for Bitcoin later dropped more than 70%, so too did demand for AMD GPUs—"a problem compounded by miners dumping their AMD GPUs on the secondary market at steep discounts." Id. ¶ 58. "AMD revenues suffered as its crypto-related sales evaporated." Id.
In 2016, the price of Bitcoin again rallied, and many new currencies entered the market. Although Bitcoin miners moved away from GPUs to application specific integrated circuits ("ASICs"), miners for these new currencies still relied on GPUs. Id. ¶¶ 56 n.4, 59. The Ethereum network, "[t]he most significant" of the new cryptocurrency networks, also saw its cryptocurrency, Ether, rise in price: it "temporarily peaked at over $400 per token in June [2017] ... [and s]everal months later, in January 2018, Ether topped $1,400 per token, an increase of more than 13,000% in a single year." Id. ¶ 60. "During this run up in GPU-mined cryptocurrency prices, miners turned to NVIDIA—specifically, its enormously popular line of GeForce Gaming GPUs—and began to purchase GeForce GPUs in droves." Id. ¶ 61. In May 2017, NVIDIA launched a special GPU designed specifically for cryptocurrency mining ("Crypto SKU"). Id. ¶ 6. Revenues from Crypto SKU sales were reported in NVIDIA's OEM segment, not the Gaming segment. Id. Plaintiffs allege that "[l]aunching the Crypto SKU and reporting its sales in the OEM segment thus allowed Defendants to claim that any mining-related revenues were cordoned off in OEM, creating the impression that NVIDIA's crown jewel Gaming business was insulated from crypto-related volatility (and the crash in demand that would follow the cryptocurrency markets’ inevitable bust)." Id.
"Throughout the Class Period, NVIDIA reported skyrocketing revenues in its core Gaming segment." Id. ¶ 63. Plaintiffs allege that "investors and analysts alike questioned whether those revenues truly derived from GeForce GPU sales to gamers or, rather, were from sales of GeForce GPUs to cryptocurrency miners, whose demand was at risk of disappearing if the economics of mining turned negative." Id. ¶ 64. Plaintiffs allege that three general representations in Defendants’ responses to these questions were materially false and misleading "and concealed from investors the enormous risk to NVIDIA's financial results posed by the Company's outsized exposure to crypto-mining:"
First, Defendants represented to investors that revenues from sales of its products to cryptocurrency miners were insignificant overall. Second, Defendants asserted that NVIDIA's soaring Gaming revenues indeed resulted from sales "for gaming"—not cryptocurrency mining. And third, Defendants represented that NVIDIA's cryptocurrency-related revenues were contained primarily in the Company's OEM reporting segment, when in fact,...
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...reliability and personal knowledge must themselves be indicative of scienter. Iron Workers Loc. 580 Joint Funds v. NVIDIA Corp., 522 F.Supp.3d 660, 674 (N.D. Cal. 2021) (citing Zucco Partners, 552 F.3d at 995 (internal citations and quotation marks omitted)). Plaintiffs have met the first p......
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...district court dismissed the complaint under Rule 12(b)(6) without leave to amend. Iron Workers Local 580 Joint Funds v. NVIDIA Corp., 522 F.Supp.3d 660, 679 (N.D. Cal. 2021). The court dismissed on the sole ground that the amended complaint failed to sufficiently plead that the defendants'......