Nvidia stock fell more than 4% on Monday following a board announcement that it will investigate CEO Jensen Huang regarding his relationship with Alice Huang, an executive at the Singapore data center company Megaspeed. U.S. intelligence believes Alice Huang was spying for China, and The New York Times reported that intelligence agencies had been monitoring her for over a year.
Securities lawyers are preparing legal action against the company. Schall, Brown & Schwartz, a Los Angeles shareholder-rights firm, announced Monday morning that it is investigating whether Nvidia made false or misleading statements or failed to disclose information pertinent to investors. Robert Bartlett, a Stanford Law professor and securities law expert, said, “I would definitely wager that there’ll be a filing,” noting that a case could be filed as early as Monday evening.
The legal focus centers on whether Nvidia's previous public statements regarding the relationship were misleading. An Nvidia spokesperson previously told The Hill that the relationship was "not unusual or unexpected" and noted that meetings with customers are a standard part of a CEO's job. However, Huang has since acknowledged to the board that the relationship was intimate.
Legal experts suggest the litigation will likely follow a "classic fraud on the market" theory. Under this framework, investors argue they paid prices based on incomplete public information and suffered losses when the truth emerged. Because Huang is the CEO, Bartlett argued that his knowledge is imputed to the company, meaning Nvidia is treated as having known what the chief executive knew.
Potential legal liabilities for Nvidia include securities fraud claims and governance issues regarding what the board of directors knew and when they knew it. If the board's investigation finds that Huang was aware of the intelligence connection, Bartlett said it would be "a whole other ball game."
