Multiple shareholder-rights law firms announced investigations into Nvidia on Monday, the first trading day after the company's board said it would investigate Chief Executive Officer Jensen Huang over his relationship with Alice Huang, an executive U.S. intelligence believes was spying for China. The company's stock fell more than 4 percent. Schall, Brown & Schwartz, a Los Angeles firm, said it is investigating whether Nvidia made false or misleading statements or failed to disclose information pertinent to investors. Other firms including Rosen Law Firm, Levi & Korsinsky, and Bronstein, Gewirtz & Grossman announced similar investigations, with Rosen saying it is preparing a class action lawsuit.
Securities law experts say the legal theory centers on statements Nvidia made last month when The New York Times first reported on the relationship. After that initial report, a company spokesperson told The Hill the relationship was not unusual or unexpected and that meetings with customers are part of a CEO's job. Huang has since acknowledged to the board that the relationship was intimate, and The Times reports U.S. intelligence had been monitoring Alice Huang, an executive at Singapore data center company Megaspeed, for more than a year.
Robert Bartlett, a Stanford Law professor and securities law expert, said the company's earlier statement was clearly misleading from a securities perspective. Because Huang is CEO, his knowledge is legally imputed to the company, meaning Nvidia is treated as having known what its chief executive knew. Bartlett said he expects plaintiffs to bring a fraud on the market claim, in which investors argue they paid prices that reflected false or incomplete public information and lost money when the truth emerged.
Nvidia is one of the most valuable companies in the world, so a settlement could prove exceedingly expensive. Such cases typically are litigated for a long time before settling, resulting in large payments from the company and its directors and officers insurers. Bartlett said the irony is that the suit is brought in the name of Nvidia's shareholders, but shareholders ultimately pay for the settlement, directly or through insurance premiums. Under federal securities law, the first complaint triggers a public notice, giving the filing firm a head start on signing up investors with large losses.