Last week, the Supreme Court granted certiorari in NVIDIA Corp. v. E. Ohman J:or Fonder AB to address two important questions on the standard for pleading securities fraud claims under the Private Securities Litigation Reform Act (“PSLRA”): (1) whether plaintiffs seeking to allege scienter under the PSLRA based on allegations about internal company documents must plead with particularity the contents of those documents, and (2) whether plaintiffs can satisfy the PSLRA’s falsity requirement by relying on an expert opinion to substitute for particularized allegations of fact.

In NVIDIA, the plaintiffs claimed that NVIDIA Corp. and three of its officers knowingly or recklessly made false or misleading statements about the impact of cryptocurrency-related sales on NVIDIA’s revenues, including by denying that increases in the company’s revenue from GPUs designed for gaming were driven by demand from crypto miners. After the District Court dismissed the complaint on the ground that it failed to sufficiently plead scienter (i.e., that the allegedly false or misleading statements were made knowingly or recklessly), the Ninth Circuit reversed. The Ninth Circuit held that the plaintiffs sufficiently pleaded scienter based on alleged statements of former employees claiming that NVIDIA had created internal reports analyzing GPU sales and usage data. The Ninth Circuit also held that the plaintiffs sufficiently alleged that the defendants had made materially false or misleading statements based on an expert analysis described in the complaint, which found that a substantial portion of NVIDIA’s revenue came from sales of gaming GPUs to crypto miners.

In their petition for certiorari, the defendants argued that the Ninth Circuit deepened two circuit splits and erred by: (1) holding that the plaintiffs sufficiently pleaded scienter despite not alleging the actual contents of any internal company reports, and (2) relying on an expert analysis to conclude that the plaintiffs sufficiently pleaded that the challenged statements were materially false or misleading. The Supreme Court’s decision on these issues could have a significant impact on how courts evaluate securities fraud allegations under the PSLRA, and might also have broader implications bearing on whether plaintiffs can rely on purported expert analyses to satisfy pleading burdens at the motion to dismiss stage. The case will be argued during the October 2024 term. We will continue to monitor the proceedings and will provide updates on Inside Class Actions.