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Nvidia reaches ‘tentative’ deal with SEC

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Nvidia has reached a broad agreement with the US Securities and Exchange Commission that in return for agreeing to be a good boy in future, the stocks and shares regulator will not fine the company this time.

The agreement, revealed in Nvidia's annual report, filed with the SEC on Friday, was tabled earlier this month. It is not a formal arrangement, and negotiations to finalise its terms could take weeks or months, Nvidia warned. Even then, the SEC may decide that it wants to take "enforcement action" after all.

The agreement, such as it is, involves an SEC cease-and-desist order to Nvidia to refrain from future violations of various US securities laws. In return, the SEC will not force the company to cough up a fine.

If that sounds like Nvidia's being let off the hook, it is. The cease-and-desist order forbids the company from breaking the law, which is the point of turning rules into laws in the first place.

The agreement marks the latest stage in an investigation into Nvidia accounting practices that has been underway since February 2002, following the results of an SEC probe into allegations of insider trading around the time that Nvidia was awarded Microsoft's Xbox architecture contract. The SEC examined whether $3.6 million recorded in Q2 and Q3 of fiscal 2000, should have been recorded in Q1. In September 2002, it started looking at other periods of Nvidia accounts.

In April 2002, Nvidia said it would restate its results going back to FY2000 to correct accounting errors identified by the SEC investigation and its own internal enquiries.

More recently, Nvidia received a Wells Notice - notification that the SEC intended to pursue punitive action against the company. This suggests that the agency uncovered something more than a calculation error. After all, $3.6 million is not a particularly large sum for a company the size of Nvidia to overlook, and doesn't of itself suggest the company was engaged in profit smoothing. But the interest in 2002's books may have revealed other irregularities. ®

Bootnote Nvidia's annual report also reveals it's tussling with the trustees of 3dfx, which sold that then bankrupt company's assets to Nvidia in April 2001. The trustees claim Nvidia has failed to make payments under the terms of the sale. Nvidia says it can't fulfil its obligations until it receives notification of the full extent of 3dfx's debts and liabilities, and so gets an idea of what it owes.

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