The race is on to sue Nvidia

Summary

• Nvidia's stock fell more than 4% on Monday following the board's announcement to investigate CEO Jensen Huang regarding his relationship with Alice Huang, whom U.S. intelligence believes spied for China.
• Schall, Brown & Schwartz, a Los Angeles shareholder-rights firm, announced an investigation into whether Nvidia made false or misleading statements or failed to disclose information pertinent to investors.
• Stanford Law professor Robert Bartlett expects a securities lawsuit filing, noting that the first complaint triggers a public notice that gives investors 60 days to request lead plaintiff status.
• Nvidia previously described Huang's relationship with Alice Huang as "not unusual or unexpected" while she worked at Megaspeed, but Huang later acknowledged the relationship was intimate.
• Bartlett states that Nvidia's earlier statement was misleading and that Huang's knowledge is imputed to the company because he is the CEO.
• The likely legal claim is a "classic fraud on the market" case where investors argue they paid prices based on false or incomplete information and lost money when the truth emerged.
• Damages in such cases are tied to the stock's decline, and settlements typically involve large payments from the company or its directors-and-officers insurers without personal consequences for the CEO.
• Bartlett identified three categories of exposure: a securities fraud claim, governance issues regarding what the board knew, and potential liability if the investigation finds Huang knew about the intelligence connection.
• The SEC could seek an officer-and-director bar for intentional securities-fraud violations, though Bartlett doubts the current administration would pursue this given political support for Huang.
• Other firms lining up against Nvidia include Rosen Law Firm, Levi & Korsinsky, Bronstein, Gewirtz & Grossman, and the Law Offices of Frank R. Cruz, with Rosen preparing a class action lawsuit.
• An investigation notice from a plaintiffs' firm indicates an opportunity for litigation but does not guarantee a strong case, as the lead plaintiff is decided later by the court based on investor losses.