HELANE L. MORRISON (Calif. Bar No. 127752)
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
Plaintiff Securities and Exchange Commission (the "Commission") alleges, on information and belief:
SUMMARY OF THE ACTION
1. This is an insider trading case in which Defendant Geoffrey C.P. Chang ("Chang") purchased securities in nVIDIA Corporation ("nVIDIA" or the "Company") on behalf of himself, Chang's father, and Chang's wife, based on confidential information Chang learned while employed by the Company. Together, Chang and his family made $324,275 in illegal trading profits.
2. On March 6, 2000, Chang, who was then an nVIDIA engineer, purchased, on behalf of himself and his family, approximately $324,520 worth of nVIDIA stock based on his advance knowledge that the Company had just won a lucrative contract with Microsoft Corporation ("Microsoft"). Within days, the price of nVIDIA stock soared as the market learned of the contract. Chang and his family made $324,275 in unlawful profits.
3. By trading on material, nonpublic information concerning nVIDIA's contract with Microsoft, Chang violated Section 10(b) of the Securities Exchange Act ("Exchange Act") of 1934 [15 U.S.C. §78j(b)] and Rule 10b-5 [17 C.F.R. 240.10b-5] thereunder.
AUTHORITY TO BRING THIS ACTION
4. The Commission brings this action pursuant to Sections 21(d), 21(e), and 21A of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78u-1(c)].
5. Chang, directly and indirectly, has engaged in transactions, acts, practices and courses of business that constitute violations of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. 240.10b-5] promulgated thereunder.
6. Chang will, unless enjoined, continue to engage in the acts, practices and courses of business alleged herein, or in transactions, acts, practices and courses of business of similar purport and object.
JURISDICTION AND VENUE
7. This Court has jurisdiction over this action pursuant to Sections 21(e), 21A and 27 of the Exchange Act [15 U.S.C. §§ 78u(e), 78u-1 and 78aa].
8. Chang, directly or indirectly, made use of the means or instrumentalities of interstate commerce, or of the mails, or of the facilities of a national securities exchange in connection with the transactions, acts, practices and courses of business alleged herein.
9. Venue in this District is proper pursuant to Section 27 of the Exchange Act [15 U.S.C. § 78aa]. Chang resides and transacts business in the Northern District of California.
10. Assignment to the San Jose Division is appropriate pursuant to Civil Local Rule 3-2(c) and (e).
11. Chang, age 34, resides in Castro Valley, California with his wife and parents. At all relevant times, Chang was employed by nVIDIA as an engineer at its offices in Santa Clara, California.
12. nVIDIA is a Delaware corporation, with its principal place of business in Santa Clara, California, that develops and markets computer graphics components. nVIDIA's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and is publicly quoted on the Nasdaq National Market.
DEFENDANT'S ILLEGAL CONDUCT
Chang Bought nVIDIA Stock on December 9, 1999
After Learning that Microsoft Had Informed nVIDIA It Had Won the X-Box Contract
13. Beginning in 1999, nVIDIA competed for a contract to supply graphics accelerator components for Microsoft's anticipated video game console, the "X-Box." On the evening of December 8, 1999, at 9:18 p.m., nVIDIA's president and chief executive officer, Jen-Hsun Huang ("Huang") sent an electronic mail message ("email") to all nVIDIA employees informing them that Microsoft would award the X-Box contract to nVIDIA. That email, entitled "We Won XBOX," read in part:
14. At the time the "We Won XBOX" email was distributed, the information concerning the X-Box was confidential and nonpublic.
15. After he arrived at work on December 9, 1999, Chang read the "We Won XBOX" email. Based on the information in the "We Won XBOX" email, Chang, who had authority to trade in brokerage accounts belonging to his wife and father, purchased more than $90,000 worth of nVIDIA stock on their behalf. At 12:34 p.m., Geoffrey placed an order in his father Thomas Chang's ("Thomas") account to buy 730 shares for a total purchase price of $27,884. Then, at 12:41 p.m. that day, Geoffrey placed an order in his wife Jenny Chang's ("Jenny") account to purchase 1,400 shares of nVIDIA stock for a total purchase price of $53,999.
Chang Sold nVIDIA Stock on February 23, 2000
After Learning that Microsoft Had Informed nVIDIA It Had Lost the X-Box Contract
16. In late February, 2000, however, Microsoft informed nVIDIA that it would award the X-Box to an nVIDIA competitor, GigaPixel Corporation. Huang conveyed this information to nVIDIA's employees and contract workers on February 23, 2000 at 11:13 a.m. in an email entitled "xbox update." The email stated that while "[t]he deal is clearly not done yet," nVIDIA had been "told by Microsoft that they had decided to go with Gigapixels [sic]."
17. At the time the "xbox update" email was distributed, the information concerning nVIDIA's failure to obtain the Microsoft contract was confidential and nonpublic.
18. Based on the information in the "xbox update" email, Chang traded in nVIDIA securities on February 23, 2000. At 11:24 a.m., 11 minutes after Huang sent his email, Geoffrey exercised employee stock options and sold 10,000 shares of nVIDIA stock for total proceeds of $653,803.
Chang Purchased nVIDIA Stock on March 6, 2000
After Learning of the Microsoft Contract
19. Negotiations between nVIDIA and Microsoft continued in late February and early March 2000. On Sunday, March 5, 2000, nVIDIA and Microsoft entered into an agreement providing for nVIDIA to design and manufacture the 3D computer graphics and multimedia subsystem for the X-Box. That evening, Huang sent an email to all nVIDIA employees and contract workers informing them that nVIDIA had won the Microsoft contract. The email, entitled "X is Ours!," stated, among other things:
20. At the time the "X is Ours!" email was distributed, nVIDIA's receipt of the Microsoft contract was confidential, nonpublic information.
21. The following morning, on March 6, 2000 at approximately 9:15 a.m., nVIDIA's vice president of marketing, Dan Vivoli ("Vivoli") sent all nVIDIA employees an email entitled "xbox shhhhhh...," reminding them that news of the X-Box contract was confidential. The email stated, in part:
22. After he arrived at work at nVIDIA on Monday, March 6, 2000, Chang read the March 5 email from Huang informing employees of the X-Box contract. In addition, Chang read the March 6 email from Vivoli reminding nVIDIA employees that information concerning the X-Box contract was confidential.
23. Later in the morning of March 6, 2000, based on the "X is Ours!" email, Chang placed orders to buy more than $324,000 worth of nVIDIA stock on behalf of himself, his wife and his father. At 9:51 a.m. on March 6, Geoffrey used his own account to buy 4,000 shares of nVIDIA stock for a total price of $234,732. At 11:02 a.m., he placed an order in his father Thomas' account to purchase 450 shares for a total purchase price of $27,932. At 11:04 a.m., Geoffrey placed an order in his wife Jenny's account to purchase 1,000 shares for a total purchase price of $61,856.
nVIDIA's Stock Price Rose in Response to X-Box Reports
24. On March 7, 2000, nVIDIA stock rose 42.4% to close at $83.31 per share as rumors were reported on the Internet and in the press that nVIDIA had won the X-Box contract. On March 9, 2000, nVIDIA stock rose another 19.4% to close at $100.30 per share.
25. On March 10, 2000, prior to the opening of the stock market, Microsoft publicly announced the award of the X-Box contract to nVIDIA. That day, nVIDIA stock rose another 17.6% to close at $118 per share.
Chang's Trades Violated nVIDIA's Policies on Insider
Trading and Use of Confidential Information
26. At all relevant times, nVIDIA had an insider trading policy that prohibited its employees from trading in nVIDIA securities based on material, nonpublic information concerning the Company and from tipping outsiders with material, nonpublic information. Chang received nVIDIA's insider trading policy prior to the time he purchased nVIDIA stock on March 6, 2000.
CLAIM FOR RELIEF
Violations of Section 10(b) of the Exchange Act
[15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. 240.10b-5]
27. Paragraphs 1 through 26 are re-alleged and incorporated herein by reference.
28. Chang had a fiduciary duty to nVIDIA and its securities holders not to trade in nVIDIA securities, either directly or indirectly, based on material, nonpublic information concerning the Company. Chang breached that duty when he purchased nVIDIA stock, on behalf of himself and his family, on March 6, 2000 based on material, nonpublic information concerning Microsoft's award of the X-Box contract to nVIDIA.
29. Chang, with scienter, directly or indirectly:
a) employed devices, schemes, or artifices to defraud;
b) made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and
c) engaged in acts, practices, or courses of business which operated or would operate as a fraud or deceit upon other persons, including purchasers and sellers of securities;
in connection with the purchase or sale of securities, by the use of means or instrumentalities of interstate commerce, of the mails, or the facilities of a national securities exchange.
30. By reason of the foregoing, Chang violated, and unless restrained and enjoined will continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that this Court:
Permanently enjoin Chang and his agents, servants, employees and attorneys, and those persons in active concert or participation with him who receive actual notice of the final judgment of permanent injunction by personal service or otherwise, and each of them, from directly or indirectly violating Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. 240.10b-5] thereunder;
Enter an Order requiring Chang to disgorge an amount equal to the illegal trading profits from the securities transactions complained of herein, plus prejudgment interest;
Enter an Order requiring Chang to pay civil penalties under Section 21A of the Exchange Act [15 U.S.C. § 78u-l]; and
Grant such other relief as this Court may deem just and appropriate.