U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17274 / December 13, 2001
Securities and Exchange Commission v. Manu B. Shrivastava, Civil Action No. C 00-04048 CRB (N.D. Cal.)
The Securities and Exchange Commission ("Commission") today announced it has obtained a judgment against Manu B. Shrivastava ("Shrivastava") imposing civil penalties for illegal insider trading in the securities of nVidia Corporation.
On December 5, 2001, U.S. District Court Judge Charles R. Breyer entered final judgment for the Commission and ordered Shrivastava to pay $250,000 plus post-judgment interest as a civil penalty pursuant to Section 21A of the Securities and Exchange Act of 1934, 15 U.S.C. § 78u-1. Judge Breyer entered the substantial civil penalty in order to deter both Shrivastava and other potential insider traders.
As described in the Commission's court filings, 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 planned 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, informing them of the agreement and its huge revenue impact on nVIDIA. The next morning, March 6, nVIDIA's vice president of marketing sent an email to all nVIDIA employees entitled "xbox shhhhhh...", reminding them that news of the X-Box agreement was confidential.
On the morning of March 6, 2000, after reading both emails, Shrivastava began to acquire short-term nVIDIA call option contracts through an Internet brokerage account. In all, he spent $30,825 acquiring 100 nVIDIA option contracts.
From March 7 through March 9, 2000, nVIDIA's share price soared, as rumors about the X-Box contract circulated on the Internet and in the press. After Microsoft announced the X-Box agreement to the public on the morning of March 10, 2000, nVIDIA shares continued to rise, closing that day at $118 per share, more than twice the closing price on March 6. Shrivastava sold all 100 nVIDIA call option contracts between March 7 and March 10, realizing illegal profits of $446,724.
The Commission filed its lawsuit against Shrivastava on September 28, 2000. Also on that date, the U.S. Attorney for the Northern District of California filed criminal insider-trading charges against Shrivastava. In the criminal action, Shrivastava pled guilty to one count of securities fraud, forfeited his illegal profits of $446,724 plus his initial investment of $30,825, and was fined $20,000 and sentenced to one year of home detention and five years of probation. As a result of the December 5 court order in the Commission's action, Shrivastava must pay an additional civil penalty of $250,000.
In a related matter, on November 19, 2001, the Commission filed lawsuits against 15 other people for trading in nVIDIA securities in March 2000 prior to the public announcement of the X-Box contract. The actions allege that the defendants (including 11 nVIDIA employees and four tippees) earned more than $1.7 million in illegal profits. Simultaneous with the filing of the complaints, the Commission also announced settlements with two of the defendants. Litigation against the remaining defendants is pending.