In Re: Nvidia Corp. Sec. Litig., No. 11-17708 (9th Cir. 2014)
Annotate this CasePlaintiffs, purchasers of NVIDIA's stock, filed suit alleging that the company violated Section 10(b) of the Securities Exchange Act of 1934 and corresponding SEC Rule 10b-5, 15 U.S.C. 78j(b), 17 C.F.R. 240.10b-5. The district court dismissed plaintiffs' amended complaint because they failed to adequately allege scienter. The court held that Item 303 of Regulation S-K did not create a duty to disclose for purposes of Section 10(b) and Rule 10b-5. Such a duty to disclose must be separately shown according to the principles set forth in Basic, Inc. v. Levinson and Matrixx Initiatives, Inc. v. Siracusano. Further, neither the collective scienter doctrine nor the core operations doctrine alone gives rise to a strong inference of scienter in this case. There is no allegation that the issue of an inherent defect in NVIDIA's Material Set was ever publicly raised prior to NVIDIA's disclosure, nor is there any allegation that NVIDIA knowingly issued a false press release, attempting to discount any public discussion regarding its chips' defects. Accordingly, the court affirmed the judgment of the district court.
Court Description: Securities Fraud. The panel affirmed the district court’s dismissal of a securities fraud action against NVIDIA Corp., a publicly traded semiconductor company, and other defendants under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities Exchange Commission Rule 10b-5. The amended complaint alleged that NVIDIA should have informed investors of product defects earlier and that absent such a disclosure, the company’s intervening statements regarding its financial condition were misleading to investors. The panel held that the plaintiffs failed adequately to allege scienter by stating with particularity facts giving rise to a strong inference that the defendants acted with the required state of mind, as required by the Private Securities Litigation Reform Act, because they intentionally misled investors, or were at least deliberately reckless. Agreeing with the Third Circuit, the panel held that the district court did not err by failing to consider plaintiffs’ allegations of scienter in the context of Item 303 of Regulation S-K, C.F.R. § 229.303, because Item 303’s disclosure duty is not actionable under § 10(b) and Rule 10b-5. The panel held that none of the plaintiffs’ allegations of scienter created a strong inference of scienter individually and that, together, they did not give rise to a strong inference of scienter holistically. The panel concluded that neither the corporate scienter doctrine nor the core operations doctrine supported a strong inference of scienter.
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