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Nvidia's Own Shareholders Sue for Coverup

By , Marcus Yam - Source: Tom's Hardware | B 41 comments

Nvidia has been slapped with a lawsuit alleging the company violated U.S. Securities laws and accusing it of keeping those major chip flaws the company announced over the summer a secret, despite knowing about them and their "root causes" since almost this time last year.

It was a pretty bad summer for Nvidia. Announcing a major hardware flaw means bad publicity for anyone. Aside from all the bad press, the lawsuit claims that when the company announced details of the flaw back at the beginning of July, Nvidia shares dropped by over 30 percent. Pile on the fact that the company said it would be incurring $200 million in warranty costs and that’s a pretty bad year.

It looks like the company is about to have an equally bad autumn thanks to the same problem. A lawsuit filed in California yesterday by New York law firm Shalov, Stone, Bonner & Rocco claims Nvidia knew about the problem with defective chips and knew of any ramifications such problems might have for the financial future of the company as early as November 2007.

The lawsuit claims that Nvidia purposely hid the information from the public with a series of statements made by the company throughout the last year and goes on to cite a series of statements from Nvidia touting its financial success for Q3 and Q4 of fiscal year 2008. The suit is seeking class action status and unspecified damages.

A similar lawsuit, but with class action status, was also announced today from the law firm of Girard Gibbs LLP. The suit is filed on behalf of all persons and entities who acquired the common stock of Nvidia Corp. between November 8, 2007, and July 2, 2008 and cites similar complaints.

Specifically, the suit takes issue with Nvidia’s "belatedly revealed" GPU defect information on July 2, 2008, which the company allegedly knew about, causing the its market capitalization to drop by over $3 billion and hurting shareholders. Those who acquired Nvidia common stock during the class period may before November 10, 2008 request to be appointed as lead plaintiff.

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  • 0 Hide
    r1Master , September 10, 2008 10:54 PM
    Pretty soon no one is going to want to make anything, supply anything, help anyone, building anything... too many lawsuits... its a sad sad world we live in...
  • 6 Hide
    Lempira72 , September 10, 2008 11:02 PM
    To R1Master You mean: too many lawsuits... its a sad sad COUNTRY we live in...
  • -4 Hide
    kyeana , September 10, 2008 11:14 PM
    ^+1
  • Display all 41 comments.
  • 4 Hide
    kelfen , September 10, 2008 11:23 PM
    LOL USA indeed. Hava a promblem sue and make alot of money that will tear apart the world by greed
  • 2 Hide
    Fliujniligui , September 10, 2008 11:28 PM
    Hey Hey, Nvidia is a nice company to own on the long term. They are leaders and will remain with some healthy competition. Well shareowners should just profit from this temporary weakness in the stock price to load up on the shares, averaging down their cost per share and awaiting for business to go back as usual.
  • -6 Hide
    Fliujniligui , September 10, 2008 11:29 PM
    Hey Hey, Nvidia is a nice company to own on the long term. They are leaders and will remain with some healthy competition. Well shareowners should just profit from this temporary weakness in the stock price to load up on the shares, averaging down their cost per share and awaiting for business to go back as usual.
  • -5 Hide
    caamsa , September 11, 2008 12:51 AM
    USA? Sad country we live in?....well go try living some where else then. I love my country USA!

    Go read a history book. We didn't start the fire.

    I do feel sorry for Nvidia.
  • 0 Hide
    bradgv , September 11, 2008 1:47 AM
    Okay, so the owners (stockholders) of the company are suing their company...this doesn't make a whole lot of sense. Any settlement that they get is just going to be paid by the company, out of their profits. Which reduces the equity in the company making the stock worth less...So if they wanted to save a whole lot of lawyer fees, they could just take $50 out of the bank, hand it back to themselves and be done with it...this has got to be some stupid lawyers idea so that they can collect the fees.
  • 7 Hide
    englandr753 , September 11, 2008 1:59 AM
    Companies should also take part in their responsibility and look out after their shareholders. If you try to beat the system sometimes it beats you and that is what is happening to Nvidia now.

    I like Nvidia and am a satisfied customer but a company big or small should do the right thing...ALWAYS!
  • 8 Hide
    fulle , September 11, 2008 1:59 AM
    Everyone seems to be feeling sorry for Nvidia.... who knew all along that they shipped defective parts, and lied to cover up their mess. Nvidia's been involved in some extremely unethical business practices here. They need to be held accountable.
  • 1 Hide
    Spider D , September 11, 2008 2:04 AM
    A while back, some people were complaining about defective manufacturing of Nvidia's desktop graphics chips. At that time it was merely speculation, but this article pointing out proven defects of mobile GPUs, which were covered up by Nvidia, really starts to make me wonder. For me it sucks more, because I own a laptop with a 8600GS M, and a desktop using two 9800GTs in SLI. At the time I bought my gear Nvidia was better money for value, but now I surely wish that I had shelled out the extra $100 for dual ATI 4850s.
    This is the crux of the issue. I paid a LOT of money for my hardware. And because of Nvidia's spineless actions of not owning up to their mistakes, and recalling their products, I don't know how long I can reliably use my computer. Will it start bugging out tomorrow? A month from now? Will it even last for a single year?
    I think the idea that the solution to all problems is to sue is just stupidity. R1Master is right. Lawsuits do not encourage companies to produce products. Less products and less competition means big losses for all customers. However, Nvidia DOES have to make recompense. I think they need to come clean and do a recall. Recalls cost lots of money, yes. But if Nvidia had been man enough to stand up at the very beginning, then there wouldn't be thousands of products to recall, just a few hundred. They lied, and the price of choosing to lie is now it'll cost much more to make amends.
  • 2 Hide
    englandr753 , September 11, 2008 2:07 AM
    Not to mention their reputation to regain...
  • 8 Hide
    mdillenbeck , September 11, 2008 3:16 AM
    I second Fulle.

    The lawsuit by the stockholders was brought about because Nvidia fraudulently inflated the value of their stock by intentionally withholding damaging information. Had this information been made public when Nvidia discovered the flaw, sales would have been lower, warranty claims would have increased, and resources would have been diverted into manufacturing replacement cards for consumers.

    It is interesting that people view Nvidia's unethical behavior as acceptable. As yourself - if Nvidia was a manufacturer of tires and they intentionally withheld a design flaw for over a year, would you hold the same sympathy for them?

    I have no sympathy for unethical corporate behavior. This is one case where a lawsuit is completely appropriate. Also, a class action lawsuit by defrauded customers of their faulty products is also wholly appropriate.
  • 0 Hide
    adamk890 , September 11, 2008 3:51 AM
    Nvidia is taking a bashing on all fronts and its kind of sad to see them get knocked around like this. Fist ATI dominates them with there 4800 series then they have a chip defect and now a class action... God help Nvidia we all benifit from them bing there. Ya what they did was wrong and the stock holders DO deserve to be compinsated but leve Nvidia with enough that they will survive.
  • 3 Hide
    englandr753 , September 11, 2008 4:17 AM
    They will survive. AMD has been taking a beating for a LONG time now and are still hanging on.

    I do want them to be around just the same as AMD and Intel. Its no benefit to the customer when theres no competetion. Let this be a lesson to them to keep their business practices ethical.
  • -3 Hide
    doomsdaydave11 , September 11, 2008 4:51 AM
    Lempira72To R1Master You mean: too many lawsuits... its a sad sad COUNTRY we live in...

    Yes, because the US is much worse off then the rest of the world. Poor US and our lawsuits... it makes Africa's problems look so insignificant.
  • 2 Hide
    bravo_18 , September 11, 2008 6:41 AM
    I mean which graphics cards are affected with this "Flaw" in Nvidia's Vc-cards...9000 series?...and

    there had been news of a Recall for defective cards..but i'm not sure which one's are on the recall line-up....
  • -1 Hide
    V3NOM , September 11, 2008 8:15 AM
    caamsaUSA? Sad country we live in?....well go try living some where else then. I love my country USA! Go read a history book. We didn't start the fire. I do feel sorry for Nvidia.

    typical.
  • 0 Hide
    neonvii , September 11, 2008 9:30 AM
    i own a laptop with a 8600GT M. i paid $1,200 for it and now i'm sitting and waiting for the "heat cycling" to destroy my laptop at any moment...i don't know whether it's gonna happen before or after my warrenty expires...and there are many ppl like me out there...i'm a student and i NEED THE COMPUTER...suddenly that INTEL x3100 graphic chip isnt so bad lol...at least it's reliable! Nvidia screwed me over...and i was a big fan...good luck surviving this Nvidia..and if they dont survive it then good riddens! AMD and Intel should take over both CPU and GPU business for good...also does anyone remember the "FX 5xxx" series... i should've learned my lesson back then.
  • -5 Hide
    giovanni86 , September 11, 2008 9:55 AM
    This just sux for nvidia, you can't be crown leader and innovator for too long. Eventually mistakes are made, its circuits and chips, all kinds of things, some times the apple does fall far from the tree. Go Nvidia!
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