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Nvidia's Own Shareholders Sue for Coverup

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6:20 PM - September 10, 2008 by Jane McEntegart, Marcus Yam

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.

Source : Tom's Hardware

Talkback
Add your comment
r1master 09/11/2008 12:54 PM
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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...

Lempira72 09/11/2008 1:02 AM
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To R1Master You mean: too many lawsuits... its a sad sad COUNTRY we live in...

kyeana 09/11/2008 1:14 AM
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kelfen 09/11/2008 1:23 AM
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LOL USA indeed. Hava a promblem sue and make alot of money that will tear apart the world by greed

Fliujniligui 09/11/2008 1:28 AM
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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.

Fliujniligui 09/11/2008 1:29 AM
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caamsa 09/11/2008 2:51 AM
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bradgv 09/11/2008 3:47 AM
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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.

englandr753 09/11/2008 3:59 AM
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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!

fulle 09/11/2008 3:59 AM
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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.

Spider D 09/11/2008 4:04 AM
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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.

englandr753 09/11/2008 4:07 AM
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Not to mention their reputation to regain...

MDillenbeck 09/11/2008 5:16 AM
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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.

adamk890 09/11/2008 5:51 AM
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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.

englandr753 09/11/2008 6:17 AM
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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.

doomsdaydave11 09/11/2008 6:51 AM
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Lempira72 :
To 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.

bravo_18 09/11/2008 8:41 AM
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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....

V3NOM 09/11/2008 10:15 AM
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caamsa :
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.


typical.

neonvii 09/11/2008 11:30 AM
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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.

demonhorde665 09/11/2008 11:33 AM
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what chips are deffective ? that's my question , i'm running on a lead Tek GF 9600 Gt , i'm a student and i have no money for a new vid card if this one cr-ps out on me i'm screwed majorly!!!!!!! (ie my main board HAS NO preinstalled vid chip so if mine vid card dies, my comp is useless until i can replace the vid card)

demonhorde665 09/11/2008 11:35 AM
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P.S. somethign in the back of my mind was telling me to stick with ati again , why didnt i listen >< my last two vid cards prior to this 9600 gt were both ati's lol and for some reason i jsut had to go with nivida this round man my vid card better not die , LOL i will be looking for some one to beat if it does LOL

giovanni86 09/11/2008 11:55 AM
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apache_lives 09/11/2008 12:51 PM
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As a supplier of computers and components were seeing disastrous failure rates with the new 9800 GTX+ - 3 gigabyte cards and an asus card out of the ~10 we ordered (low stock levels luckily limited our purchase amounts) - as much of an nvidia fan as i may be, those ATi cards are sure looking like a better deal after all this, not to mention the issues with the 8600's and 8500's were still seeing (still covered by warranty).

englandr753 09/11/2008 1:18 PM
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Is there a link with an actual list of defective models of Nvidia cards? This needs to be made clear to the consumers so they can take proper warranty action.

Its BS to have to wait and wonder if your card craps out on you...

jkflipflop98 09/11/2008 1:37 PM
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This will be especially aggrivated by the much-touted FAH GPU support. F@H runs the GPU 100% for 2 hours - thereby maxing out the temps of your card. After 2 hours of work, it has about 10 minutes where the GPU goes idle as it uploads to the server and awaits the next unit - thereby allowing the part to cool to near idle temps. Once it has the work unit, it's back to 100% balls to the wall computing. Over and over and over.

englandr753 09/11/2008 2:32 PM
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I did F@H until I saw my power bill go up 100.00. Running a Quad core with 2 8800GTX ANS3 cards all day long takes a lot of power, obviously.

Lempira72 09/11/2008 2:49 PM
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Only In America !!

kansur0 09/11/2008 4:28 PM
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Corporations will always try to get away with what they can...especially in the computer industry. When they become as large as nVidia there is a fair amount of pressure to remain competitive. Most products that are created can sometimes go through five or six revisions inside a product life cycle before they have perfected that specific line. When they test a design and it "works" they release it. What comes into play here is the product testing. How high are the testing standards? What is termed an acceptable flaw? What percentages of failure are they willing to accept before a product is deemed ready for market release?

Due to the nature of the failure it would seem that this problem would be hard to detect. Stress testing once or twice would not make the product fail. From what I have read the heating and cooling of the chip over many cycles causes the chip to fail. They might have even found the problem and took a gamble.

Option 1 - They could have fixed the problem using a different material but that would have entirely changed the design of the board because of the conductive properties of the material. This could have delayed lines of chips by two to three months thus losing ?hundreds? of millions in revenue releasing at a later date.

Option 2 - They release the chips maintaining market share and profits hoping that at a later date they could fix the problem by changing the material with a new design revision. They also hope that the percentages of failure turn out to be an "acceptable" level without having to do a full scale recall.

It would seem that they chose Option 2 and with this option comes scrutiny and downgrade in reputation as a company that is willing to sacrifice quality over profit and market share.

Long story short (too late) they are now going to pay. Was it worth it? In my opinion...NO. Any company that knowingly sells products that are faulty in exchange for profit should not be in business.

Now the onus is on them to prove by whatever means that they did not know about the defect. Now it is up to the courts to decide. Let's see what they can dig up!

piratepast40 09/11/2008 4:39 PM
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V3NOM :
typical.


I don't get it. Typical what?

Spider D 09/11/2008 4:46 PM
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The confirmed affected GPUs are the mobile 8400, 8600, and 8700. All of them, every single one. However, these are just the chips revealed to be defective by Dell. As of yet we still have no idea if any of the desktop GPUs are defective. Nvidia have been deliberately vague, not publicly specifying which chips are likely to be faulty. Apparently us customers, who are the source of all their income, aren't important enough to reveal that information to.

It should be noted though, that the defect has to do with temperature. High tempertures may eventually cause the hardware to malfunction, or even die. Thus if you're an office user who never games, your GPU is far less likely to fail. It's the power users, and gamers that really have to watch out.

piratepast40 09/11/2008 6:27 PM
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^ Thanks for some real world and relevant info Spider. Unfortunately the uneducated are squawking the most and not looking to see if they are actually affected - just want to jump on the "the world is unfair and they're screwing me - whaaa" bandwagon.

If you own one of the laptops with these chips just go to the appropriate forum to see if a bios update was issued for your model - that should help lower temps. IMO, it's the OEM's that should be suing. They're the ones that purchased the product and now have to deal with their own warranty issues and customer dissatisfaction.


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