By Maya Jenkins, Senior Policy Analyst, Americans for Financial Reform
Fears over the conduct of NVIDIA CEO Jensen Huang reached a fever pitch this week, after the tech mogul dropped earlier denials and admitted he’d had an affair with a tech executive named Alice Huang, who is accused by the U.S. of spying for the Chinese government. The revelation sent shockwaves through Silicon Valley, Wall Street, and the Beltway. On November 12, after much speculation, Huang resigned as president and CEO of NVIDIA effective immediately. But for the consumers and investors the company has misled over the past quarter century, the deception may not be so shocking. For years, NVIDIA has violated rules designed to protect people from harm. And for years, rather than holding it accountable, the federal government has let the company off with a slap on the wrist.
In 2000, after realizing that the company was lagging behind expectations for its quarterly financial performance, then-NVIDIA CFO Christine Hoberg “purposefully failed to record” a $3.3 million liability in order to artificially inflate the company’s gross profit and income, according to the Securities and Exchange Committee (SEC). The SEC charged her with fraud and she was ordered to pay $671,694.99, barred from serving as an officer at a public company for the next five years, and banned from breaking securities laws. Nvidia didn’t pay a dime.
Between its initial public offering in 1999 and 2006, NVIDIA recorded employee stock option grants using dates when its stock price was lower, rather than the dates the grants were actually finalized. In cherrypicking dates, NVIDIA both gave its employees a hidden compensation bump and overstated its profits by $127 million. NVIDIA conducted its own investigation of itself and “…concluded that the evidence did not give rise to any concern about the integrity…” of its leadership and that “…improper practices brought to light during their review were not motivated by any intent to mislead investors, improve NVIDIA’s reported financial results, or obtain any personal benefit.” The SEC later closed its own inquiry into the practice. But shareholders sued and secured a settlement that required NVIDIA to revise its corporate governance policies and options and Huang to give up $3.5 million in stock option value.
In 2017, NVIDIA misled investors and the public when it failed to disclose that a significant share of the sales growth in its primary and more durable gaming business actually came from cryptomining. This accounting trick buried over one billion dollars in cryptomining revenue. The trick prevented investors from being able to decide how much of that sales growth they thought would last, and therefore how valuable they thought the company actually was. And that mattered. In March 2018, Huang told CNBC’s Jim Cramer, “Cryptocurrency will be here…I expect cryptocurrency to be an important driver for GPUs.” By August of that same year, Nvidia’s quarterly sales of crypto-specific chips were down by over 90%, and by December its stock price had fallen more than 50% from its October peak. By 2023, Nvidia’s cryptomining revenue was virtually zero. The SEC found that Nvidia violated the law when it failed to disclose the impact cryptomining had on its revenue growth during those strong quarters. But all the company got was a $5.5 million fine—0.02% of its total revenue that fiscal year—and an order to “cease and desist from committing or causing any future violations” of the relevant securities laws. At the time, the company’s now-acting CEO was its CFO and “led the company’s finance organization.”
This is not just about one man. As more allegations flood into the public domain—like reporting that NVIDIA stopped disclosing revenues from Singapore last year, right before the DOJ took over an investigation of Alice Huang’s employer, Singapore-based Megaspeed—those allegations must be understood in the wider context of NVIDIA’s—and, indeed, Silicon Valley’s—lawlessness.
The list of NVIDIA’s violations is long, and it includes the myriad antitrust violations the company stands accused of. News of Huang’s affair is not the beginning of a story about misconduct at NVIDIA. Just as news that President Trump knew about the affair and did not act is not the beginning of a story about the federal government’s failure to hold billionaire executives accountable. This is a sordid climax in a cautionary tale about what happens when governments allow corporations to act with impunity.
It is time we end this chapter. Congress has the tools it needs to set a strong corporate governance floor for tech companies and all public companies so that executives do not have total control without accountability and multiple tools to stop billionaire executives from breaking the law with impunity