Nvidia shares slide again as Huang faces shareholder suit

Nvidia ↘ 6.48% shares fell for a second day on Tuesday as investors weighed the fallout from CEO Jensen Huang's affair with a woman U.S. officials reportedly suspect of spying for China. On Monday, the stock fell nearly 9% at its lowest point and closed down 4.3%. That erased about $190 billion in market value on a day when the Nasdaq Composite rose almost 3%. On Tuesday, the shares sank a further 4% as a shareholder lawsuit and an FBI inquiry added to the pressure.businessinsider.com+3

Over the weekend, Huang told staff in an email that he had been "unfaithful" to his wife and had "fallen short" of his responsibilities as CEO, CNBC Comcast Corporation ↗ 1.43% reported. Nvidia's board opened an independent investigation, led by independent directors with outside counsel, into reports that Huang was "the target of a foreign intelligence effort." The board said it had "no reason to believe that either national security or NVIDIA secrets were compromised."cnbc.com+1

A short-seller's early warning

The woman has been identified as Alice Huang, also known as Huang Le. She is not related to the CEO. She was a senior executive at Megaspeed, a Singapore-based data center company that rents out computing power from Nvidia chips. On Oct. 29, The New York Times reported that U.S. officials had concluded she was "a Chinese intelligence asset, funneling information to Beijing." China's foreign ministry has called the espionage claim "groundless."afp.com+2

Short-seller Culper Research flagged the relationship back in May, in a report titled "Nvidia: The China Problem." The report said Huang had kept "an uncomfortably close relationship with Megaspeed's Alice Huang" and tied Megaspeed to a web of firms linked to Alibaba ↘ 2.47% that allegedly helped China get around U.S. chip export controls, Business Insider reported. Hunterbrook co-founder Sam Koppleman told the outlet that "the most powerful CEO in AI may be compromised."businessinsider.com

Fraud questions and a lawsuit

Bloomberg Opinion columnist Matt Levine took up the legal question directly in a newsletter titled "Is the Nvidia Affair Securities Fraud?" Plaintiffs' lawyers have already answered yes. About five minutes after Monday's close, a proposed class action was filed in federal court in San Jose. The suit, brought by the Rosen Law Firm, alleges that Nvidia and Huang made false or misleading statements about the affair and about Nvidia's relationship with Megaspeed, and that this posed a material risk to the company's reputation and business. None of the allegations have been proven.bloomberg.com+2

President Donald Trump said Monday that the FBI is looking into the matter and that he thinks Huang "will be in good shape." Dan Ives of Yorkville Ives & Co. said investor chatter puts the chance that Huang is removed as CEO at roughly 15%. He expects the board's investigation to take four to six weeks and to "create a clear overhang on the stock until more news emerges."cnbc.com