Nvidia (NVDA) and Meta (META) are fighting two lawsuits in the Supreme Court this year, arguing that unless a ruling is made in their favor, the legal system will be flooded with investor lawsuits.
Things are not going quite as planned at the moment.
Nvidia’s lawyers filed their case in high court on Wednesday, drawing skepticism from judges across the ideological spectrum. The same thing happened to Mehta’s lawyer last week.
Justice Elena Kagan, appointed by Democratic President Barack Obama, told NVIDIA lawyer Neal Kumar Katyal, “You’re asking us to engage in some kind of analysis that we’re not very good at.” It seems to me,” he said.
Depending on the outcome of the case, parties to future securities fraud lawsuits could be weakened or emboldened.
Nvidia says investors who sued the company, accusing Nvidia CEO Jensen Huang of making false statements, are asking in the lawsuit to provide more specific information about what Huang knew at the time he made the statements. It is argued that it should be done.
Investors allege that in 2017 and 2018, Huang misallocated NVIDIA’s chip demand to the video game market and deliberately withdrew from NVIDIA’s internal data.
Nvidia CEO Jensen Huang (AP Photo/David Zalubowski) ·Related news organizations
Investors theorized that demand at the time was actually driven by the more volatile crypto mining market. This hypothesis is based on the opinions of financial analysts who base their conclusions on publicly available documents, not Nvidia’s internal documents.
Supreme Court Justice Samuel Alito, an appointee of Republican President George W. I don’t understand how you can oppose it.”
The justices pressed NVIDIA to repeat arguments made last week in Meta’s lawsuit against Facebook and explain why it should reverse the Ninth Circuit Court of Appeals’ ruling.
In both cases, the appeals court allowed investors to bring securities fraud class actions against the companies.
Jonathan Macy, a professor at Yale Law School, said he was surprised by the judge’s questions in the Facebook case.
“One of the surprising things about the oral arguments was that conservative Justice Clarence Thomas and liberal Justice Sonia Sotomayor expressed “very pro-plaintiff concerns,” and “this kind of cross-aisle alliance.” “That’s what it is,” he said. ”
Facebook said investors could not claim it misled shareholders by omitting that the data of 87 million Facebook users was leaked through a partnership with British political consulting firm Cambridge Analytica. .
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At the heart of both disputes is the question of what facts a plaintiff must include in a legal complaint in order for the case to continue in court.
Facebook has accused its company of failing to disclose that the Cambridge Analytica breach actually occurred in the past, especially since the so-called risks pose no known risk of causing ongoing or future business harm. It argued that the disclosures were not false or misleading.
Meta CEO Mark Zuckerberg stands at the Capitol in 2018 (Photo by Yasin Ozturk/Anadolu Agency/Getty Images) ·Anadolu (via Getty Images)
According to Nvidia, investors should not be able to rely on expert opinions to sustain a proposed class action lawsuit against the company.
“Congress … wanted to stop lawsuits like this, lawsuits that excuse fraud in hindsight,” Katyal said on behalf of NVIDIA during arguments Wednesday.
“When stock prices go down, all (plaintiffs) have to do is find an expert who has numbers that contradict what the company is publishing,” Katyal said.
Katyal also said the decision in favor of shareholders creates an “easy roadmap” for plaintiffs to circumvent federal laws that require them to include certain information in securities fraud complaints.
The Private Securities Litigation Reform Act (PSLRA) was enacted in part to prevent frivolous lawsuits, in which plaintiffs claim that the defendant company intended to make false or misleading statements and that the statements were actually made. It stipulates that it must be proven that it was false.
Supreme Court Justice Neil Gorsuch, appointed by Republican President Donald Trump, also said he thinks the PSLRA may need improvement.
Mr. Gorsuch said it was “incredible” to think that a CEO like Mr. Hwang didn’t know that such a large portion of his company’s revenue came from.
Jim Redwood, a securities law professor at Albany Law, doubts the Supreme Court will ultimately rule in favor of investors, and both cases are resolved in a way that discourages future securities class actions. He said he was looking forward to it.
“The Facebook case is somewhat closer,” he said, explaining that the social media company’s case may be a little weaker than the Nvidia case.
The Department of Justice joined the Nvidia lawsuit on the side of investors.
“We believe the Ninth Circuit correctly applied the standard here,” Justice Department lawyers said in arguments Wednesday.
Alexis Keenan is a legal reporter at Yahoo Finance. X Follow Alexis at @alexiskweed.
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