A US Securities and Exchange Commission (SEC) investigation into
transactions conducted by graphics chipmaker Nvidia is likely to
focus the company's accounting practices associated with the
development of graphics chips for Microsoft's Xbox game
console.
NVidia officials revealed on 14 February that the SEC had begun an
investigation into the company's accounting practices during 2000
and 2001. The SEC is also investigating the possibility that $3.6m
(£2.5m)-worth of product costs were recorded in the wrong
accounting period.
NVidia chief executive Jen-Hsun Huang declined to comment on the
SEC investigation, including the nature of the reserves under
investigation.
"While the nature of this inquiry is being kept under wraps, we
believe the reserves in question relate to the launch of the Xbox,"
said Eric Ross, a researcher at Thomas Weisel Partners. "We believe
this because of the method of discovery as stated in the (NVidia)
press release: through the separate employee insider trading
investigation."
The SEC brought insider trading charges against 10 Nvidia employees
in November following allegations that the 10 NVidia employees and
five others purchased NVidia stock on 6 March , 2000, knowing that
the company would win a contract to produce graphics chips for
Microsoft's Xbox .
Following the announcement that NVidia had won the Xbox contract on
10 March, 2000, the accused allegedly sold their shares, reaping
$1.7m (£1.18m) in profits.
NVidia has handed over e-mails and other materials dating from
between December 1999 and March 2000 to government
investigators.
The few details that are publicly available regarding NVidia's
handling of the transactions indicate that the company may have
delayed recognising Xbox-related revenue until after Microsoft's
official unveiling of the Xbox, Ross said.