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 Robert J. Prevett ("Prevett") purchased securities in nVIDIA Corporation ("nVIDIA" or the "Company") based on confidential information he learned while employed by the Company and made $595,000 in illegal trading profits. Prevett shared this information with his girlfriend, Wendy Goody ("Wendy"), who bought nVIDIA stock and made $259,525 in illegal profits. Prevett and Wendy shared the information with Wendy's father, Clifford D. Goody ("Clifford"), who also bought nVIDIA stock and made $37,250.
2. On March 6, 2000, Prevett, who was then an nVIDIA engineer, purchased approximately $629,768 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. Prevett made $595,000 in unlawful profits. His tippees, Wendy and Clifford, purchased 6,000 and 1,150 nVIDIA shares and made illegal profits of $259,525 and $37,250, respectively.
3. By trading on material, nonpublic information concerning nVIDIA's contract with Microsoft, Defendants 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. Defendants, directly and indirectly, have 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. Defendants 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. Defendants, 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]. Defendants reside and transact 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. Prevett, age 36, resides in Sunnyvale, California. At all relevant times, Prevett was employed by nVIDIA as an engineer at its offices in Santa Clara, California.
12. Wendy, age 31, resides in Pleasanton, California. At all relevant times, Wendy was employed as a trader at a San Francisco, California brokerage firm.
13. Clifford, age 57, resides in Red Bluff, California. At all relevant times, Clifford was a self-employed plumbing contractor in Red Bluff.
14. 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.
DEFENDANTS' ILLEGAL CONDUCT
Prevett Bought nVIDIA Stock on December 9, 1999
After Learning that Microsoft Had Informed nVIDIA It Had Won the X-Box Contract
15. 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:
16. At the time the "We Won XBOX" email was distributed, the information concerning the X-Box was confidential and nonpublic.
17. After he arrived at work on December 9, 1999, Prevett read the "We Won XBOX" email. Based on the information in the "We Won XBOX" email, beginning at 10:23 a.m., Prevett placed orders to purchase a total of 10,000 shares of nVIDIA stock, spending approximately $375,050.
18. 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 in a February 23, 2000 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]."
Prevett Purchased nVIDIA Stock on March 6, 2000
After Learning of the Microsoft Contract
19. Negotiations between nVIDIA and Microsoft, however, 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, Prevett read the March 5 email from Huang informing employees of the X-Box contract. In addition, Prevett 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, after reading these two emails, Prevett purchased nVIDIA stock through an online brokerage account. Based on the "X is Ours!" email, beginning at 11:05 a.m., Prevett spent $629,768 to purchase a total of 10,000 shares of nVIDIA stock.
Wendy and Clifford Bought nVIDIA Stock Based on the X-Box News
24. On the evening of March 6, Wendy joined Prevett at his home. There, Prevett informed Wendy that nVIDIA had won the X-Box contract from Microsoft. Prevett and Wendy telephoned Clifford and told him that nVIDIA had won the X-Box contract.
25. The next day, on March 7, at 6:27 a.m., Wendy purchased 6,000 shares of nVIDIA stock, spending $448,475. A few hours later, at 12:53 p.m., Clifford purchased 1,150 shares of nVIDIA stock on behalf of himself and his wife for a total cost of $92,918.
nVIDIA's Stock Price Rose in Response to X-Box Reports
26. 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.
27. 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.
Prevett's Trades Violated nVIDIA's Policies on Insider
Trading and Use of Confidential Information
28. 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. Prevett 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
29. Paragraphs 1 through 28 are re-alleged and incorporated herein by reference.
30. Prevett 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. Prevett 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 and when he disclosed material, non-public information about nVIDIA to Wendy and Clifford on March 6, 2000. By reason of their long-time, close personal relationship, Prevett obtained a personal, non-monetary benefit by disclosing this information to Wendy and Clifford so that Wendy and Clifford could trade. By reason of their long-time, close personal relationship, Wendy obtained a personal, non-monetary benefit by disclosing this information to Clifford so that Clifford could trade.
31. Wendy and Clifford knew or had reason to know that Prevett was acting in breach of his fiduciary duty to nVIDIA and its securities holders by disclosing to Wendy and Clifford material, non-public information about nVIDIA on March 6, 2000.
32. Defendants, 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.
33. By reason of the foregoing, Defendants 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 Defendants and their agents, servants, employees and attorneys, and those persons in active concert or participation with them 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 Defendants to disgorge an amount equal to their illegal trading profits from the securities transactions complained of herein, plus prejudgment interest;
Enter an Order requiring Defendants 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.