Nvidia’s stock price fell more than 4% on Monday, the first business day after the company’s board announced it would investigate the relationship between CEO Jensen Huang and Alice Huang. US intelligence officials believe that Alice Huang was spying for China.
Securities lawyers were already on the move. At least four companies, including Char Brown Schwartz and Levi Korsinski, announced investigations Monday into whether Nvidia misled investors. Robert Bartlett, a Stanford University law professor and securities law expert, expects they will have many allies.
“I’m definitely betting that a lawsuit will be filed,” Bartlett said in an interview Monday morning, adding that he wouldn’t be surprised if a lawsuit was filed by the end of the day. Plaintiffs’ lawyers have good reason to be on the front lines. Under federal securities laws, an initial complaint triggers public notice, after which investors have 60 days to ask the court to appoint a lead plaintiff. Companies that file early can get a head start in shaping deals and litigation stories with investors who have suffered large losses. In fact, Bartlett was right. The incident surfaced on Monday afternoon in the Northern District of California, where NVIDIA is headquartered.
Rosen Law Firm, a New York-based plaintiff firm specializing in securities class action lawsuits, filed the lawsuit on behalf of Mark Kistenmacher, an individual investor who made seven purchases this year totaling about $20,500, according to a schedule attached to the complaint. (Mr. Rosen is the lead attorney in the $250 million settlement with Alibaba and ranks as one of the most active filers of this type of lawsuit.) The proposed classification would target anyone who purchased Nvidia securities between October 9, 2025 and November 8, 2026, and the lawsuit names both Nvidia and Huang.
The complaint accuses Alice Hwang of misleading investors about Hwang’s relationship with MegaSpeed, a Singapore-based data center company where she was considered chief executive, and cites three statements as evidence. One is Nvidia spokesperson John Rizzo’s claim in late October that Hwang’s interaction with Alice Hwang was “not unusual or unexpected,” an earlier claim that “we found no evidence of diversion” of the company’s chips, and Jensen Hwang’s claim in late October. 30 told Bloomberg that the Nvidia-Megaspeed deal is “normal and not abnormal.”
The complaint alleges that all three claims were false or misleading because Mr. Huang had an affair with Alice Huang. Kistenmacher is seeking unspecified damages, interest and attorney’s fees, and wants a jury trial.
There are still many unknowns, but the legal theory here does not depend on what the commission’s investigation might reveal about Mr. Hwang’s private life. When the New York Times first reported on Phan’s relationship with Alice Phan last month, Lizzo really told the Times that the relationship was “not unusual or unexpected.” “MegaSpeed is no different than many other regional cloud customers,” Rizzo told another outlet, The Hill. “Meeting with customers is part of a CEO’s job, and Jensen speaks with thousands of customer executives every year.”
Mr. Hwang has since admitted to the board that the relationship was close. Meanwhile, the Times reported that US intelligence agencies had been monitoring Alice Huang for more than a year.
Bartlett said that from a securities perspective, the company’s previous statements “were clearly misleading statements.” And because Huang is CEO, “his knowledge is vested in the company,” Bartlett said. In other words, NVIDIA is treated as if it knew what its CEO knew.
Similar claims are made in Kistenmacher’s complaint.
Mr. Bartlett predicted a “classic fraud in the markets” claim, in which investors claim to have paid prices that reflected false or incomplete public information and suffered losses when the truth came out. This early lawsuit was based on that theory, and Monday’s drop of $7.97 per share, or 4.27%, gives the lawyers involved a lot of credit. Since the damages in such cases are tied to stock price declines, and NVIDIA is one of the most valuable companies in the world, you can imagine that a settlement would be very expensive.
Bartlett points out that the usual path forward is for lawsuits to be litigated for a long time and then settled. This means large payouts from the company and its directors and officers’ insurance companies, but typically does not personally affect the CEO or board of directors. Since this is also a civil matter, Mr. Hwang will not face any jail time in this case.
Ironically, as Bartlett pointed out, the lawsuit was filed in the name of Nvidia’s shareholders, who will ultimately pay the settlement, either directly or through insurance premiums.
Bartlett categorized Nvidia’s broad exposure into buckets. The first is the securities fraud allegations, which are the most obvious and pressing issue for the company and potentially for Huang. The second is governance. What the board knew and when. While the directors may have been kept in the dark, the board also has a duty of oversight, and the company should have had a reporting line in place to bring such a material risk to the board at the time the Times began reporting on the mega-speed connections. Failure to do so, or a director’s failure to act, may result in board-level liability.
The third category, which changes everything, would only arise if the committee’s investigation found that Mr. Hwang had knowledge of ties to intelligence agencies. As Bartlett says, it will be “a whole different ballgame.” (The board said in a statement to the public Sunday that it has no reason to believe that national security or NVIDIA’s secrets were compromised.)
There is also the issue of government action. The SEC can seek to disbar officers and directors for intentional securities fraud violations, which Bartlett said is technically on the table. However, given President Trump’s support for Hwang, it is questionable whether the current SEC, led by Chairman Paul Atkins, has the desire to do so. A future administration would have about two years to act after the facts were discovered, but that window is tight, and when asked about that, Bartlett declared it highly unlikely.
It is worth emphasizing that neither the law firm’s announcement nor this newly filed complaint are signs of a strong lawsuit. Plaintiff’s company publishes these notices as soon as it has the opportunity. Which company will lead the case will later be determined by the court, and that decision will typically depend on which investors have suffered the greatest losses. Kistenmacher said in his filing that he intends to serve as lead plaintiff, but ultimately the court will choose between competing investors. No doubt they will come soon.
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