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 Evan Kong Lau ("Lau") purchased securities in nVIDIA Corporation ("nVIDIA" or the "Company") based on confidential information he learned while employed by the Company and made $11,900 in illegal trading profits.
2. In March 2000, Lau, who was then an nVIDIA engineer, purchased approximately $11,787 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. Lau made $11,900 in unlawful profits.
3. By trading on material, nonpublic information concerning nVIDIA's contract with Microsoft, Lau 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. Lau, 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. Lau 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. Lau, 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]. Lau 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. Lau, age 36, resides in Cupertino, California. At all relevant times, Lau 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
Lau Sold nVIDIA Stock on February 24, 2000
After Learning that Microsoft Informed nVIDIA It Had Lost 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 Wednesday, February 23, 2000, at 11:13 a.m., nVIDIA's president and chief executive officer, Jen-Hsun Huang ("Huang") sent an electronic mail message ("email") to all nVIDIA employees and contract workers informing them that Microsoft would award the contract to an nVIDIA competitor, GigaPixel Corporation. The email, entitled "xbox update," 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]."
14. At the time the "xbox update" email was distributed, nVIDIA's failure to obtain the Microsoft contract was confidential, nonpublic information.
15. Lau read the February 23 email from Huang on or about February 23, 2000. On February 24, 2000, Lau exercised stock options he received from nVIDIA as part of his compensation and received 175 shares. Based on the information in the "xbox update" email, at approximately 9:33 a.m. that day, Lau sold the 175 shares of nVIDIA stock and received proceeds of approximately $11,365.
Lau Purchased nVIDIA Stock on March 6, 2000
After Learning of the Microsoft Contract
16. 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 informing them that nVIDIA had won the Microsoft contract. The email, entitled "X is Ours!," stated, among other things:
17. At the time the "X is Ours!" email was distributed, nVIDIA's receipt of the Microsoft contract was confidential, nonpublic information.
18. 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:
19. After he arrived at work at nVIDIA on Monday, March 6, 2000, Lau read the March 5 email from Huang informing employees of the X-Box contract. In addition, Lau read the March 6 email from Vivoli reminding nVIDIA employees that information concerning the X-Box contract was confidential.
20. Later in the morning of March 6, 2000, after reading these two emails, Lau purchased nVIDIA stock through an on-line brokerage account. Based on the "X is Ours!" email, at approximately 11:17 a.m. that day, Lau spent approximately $11,787 to purchase a total of 200 shares of nVIDIA stock.
nVIDIA's Stock Price Rose in Response to X-Box Reports
21. On March 7, 2000, the day after Lau's stock purchase, 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.
22. 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.
Lau's Trades Violated nVIDIA's Own Policies on Insider
Trading and Use of Confidential Information
23. 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. Lau received nVIDIA's insider trading policy prior to the time he purchased nVIDIA stock on March 6, 2000.
24. By purchasing nVIDIA securities on March 6, 2000 after learning material, nonpublic information concerning the award of the X-Box contract to nVIDIA, Lau violated the Company's policies on insider trading and use of confidential information.
CLAIM FOR RELIEF
Violations of Section 10(b) of the Exchange Act
25. Paragraphs 1 through 24 are re-alleged and incorporated herein by reference.
26. Lau 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. Lau breached that duty when he purchased nVIDIA stock on March 6, 2000 based on material, nonpublic information concerning Microsoft's award of the X-Box contract to nVIDIA.
27. Lau, 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.
28. By reason of the foregoing, Lau 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 Lau 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 Lau to disgorge an amount equal to his illegal trading profits from the securities transactions complained of herein, plus prejudgment interest;
Enter an Order requiring Lau 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.