Supreme Court Declines to Consider New Pleading Standard for Securities Fraud Claims

On December 11, 2024, the Supreme Court dismissed NVIDIA Corporation’s appeal, allowing a class action securities fraud case to move forward towards trial.

The Plaintiffs originally brought the case in the United States District Court for the Northern District of California, alleging that during the class period May 10, 2017, through November 14, 2018, NVIDIA’s executives knowingly or recklessly made false or misleading statements to their investors by downplaying the potential effects that crypto mining or crypto currency sales would have on their gaming revenue. More specifically, the Plaintiffs alleged that 1) NVIDIA’s executives had knowledge that increases in demand for NVDIA’s Gaming-segment products were largely dependent on crypto-related sales, 2) their public statements downplaying the effect of crypto-related sales on NVDIA’s gaming revenue were materially false or misleading, and 3) the statements were made knowingly or recklessly. In 2018, as cryptocurrency prices began to decline, NVIDIA’s GPU sales declined as well. There was also a 28.5% decline in NVIDIA’s stock price during a two-day trading period.

The District Court dismissed the Plaintiffs’ amended complaint for failure to sufficiently plead that NVIDIA’s allegedly false or misleading statements were made recklessly or knowingly. The United States Court of Appeals for the Ninth Circuit reversed the District Court’s ruling. In June 2024, the Supreme Court granted NVIDIA’s petition for certiorari.

The Supreme Court was set to determine the proper pleading standard required to show knowledge or intent for Private Securities Litigation Reform Act (“PSLRA”) claims that rely on internal company documents. The PSLRA was created to limit the number of frivolous lawsuits. Prior to the PSLRA’s creation, plaintiffs were permitted to securities lawsuits without meeting a heightened pleading standard. The Supreme Court was going to decide whether the Plaintiffs seeking to allege scienter under the PSLRA based on allegations about internal company documents must plead with particularity the contents of those documents and whether plaintiffs can satisfy the PSLRA’s falsity requirement by relying on expert opinions in place of particularized allegations of fact.

The Supreme Court’s decision to dismiss NVIDIA’s appeal goes beyond simply allowing the case to move forward towards trial. It keeps intact a pleading standard that is arguably   confusing and ambiguous. Thus, to resolve such ambiguity, the Court may have to take up a similar case in the future or defer to an act of Congress.