SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16669 / August 30, 2000
SECURITIES AND EXCHANGE COMMISSION v. MANU B. SHRIVASTAVA, United States District Court for the Northern District of California, Civil Action No. 00 20904 PVT
The Securities and Exchange Commission today filed a lawsuit alleging insider trading by Manu B. Shrivastava, a former engineer at nVIDIA Corporation. The action alleged that Shrivastava earned $446,724 in illegal profits by trading on inside information about a contract nVIDIA had entered into with Microsoft Corporation. Shrivastava, age 31, lives in San Jose, California. nVIDIA, a company based in Santa Clara, California, designs and builds computer graphic components.
According to the Commission's complaint, 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 sub-system for Microsoft's new video game console, the "X-Box." That evening, nVIDIA's president and chief executive officer sent an email entitled "X is Ours!" to all nVIDIA employees to inform them of the agreement and its huge revenue impact on nVIDIA. The next morning, on Monday, March 6, nVIDIA's vice president of marketing sent an email to all nVIDIA employees entitled "xbox shhhhh...," reminding them that news of the X-Box agreement was confidential.
The complaint further alleges that on the morning of Monday, March 6, 2000, after reading both emails, Shrivastava began to acquire short-term nVIDIA call option contracts through an online brokerage account. In all, he spent nearly $31,000 acquiring 100 short-term nVIDIA call option contracts.
From March 7 through March 9, as rumors about the X-Box contract circulated on the Internet and in the press, nVIDIA's share price soared 71.4% to a March 9 closing price of $100.30. After Microsoft announced the X-Box agreement to the public on the morning of March 10, nVIDIA shares rose an additional 17.6% to close that day at $118, more than twice the closing share price on the day that Shrivastava made his options purchases. Shrivastava sold all 100 nVIDIA call option contracts between March 7 and March 10, realizing illegal profits of $446,724.
The Commission seeks disgorgement of Shrivastava's profits, plus interest, civil monetary penalties for insider trading, and an order from the court permanently enjoining Shrivastava from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
The U.S. Attorney for the Northern District of California filed a parallel criminal complaint charging Shrivastava with one count of securities fraud and one count of wire fraud. The maximum statutory penalty for securities fraud is ten years' imprisonment; wire fraud carries a penalty of up to five years' imprisonment. If convicted, Shrivastava may also be fined as much as $250,000 on each count, in addition to forfeiture of the full amount of his trading profits.