the edward j. goodman life income trust, et al. v. jen

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28Nominal Defendant .

C0 6VERIFIED SHAREHOLDERDERIVATIVE COMPLAINT FORVIOLATION OF THE FEDERALSECURITIES LAWS AND STATELAW CLAIMS FOR BREACH OFFIDUCIARY DUTY, ABUSE OFCONTROL, CONSTRUCTIVE FRAUD,CORPORATE WASTE, UNJUSTENRICHMENT, GROSSMISMANAGEMENT AND ACTIONFOR ACCOUNTIN G

DEMAND FOR JURY TRIA L

Joseph J . Tabacco, Jr. (75484)Email : jtabacco@bermanesq .comChristopher T. Heffelfinger (118058)Email : cheffelfinger@bermanesq .comNicole Lavallee (165755 )Email : nlavallee@bermanesq .comBERMAN, DeVALERIO , PEASE , TABACCO

BURT & PUCILLO425 California Street, 21st FloorSan Francisco, California 94104Telephone: (415) 433-3200Facsimile : (415) 433-638 2

Joseph C. KohnEmail : jkohn@kohnswifl .comDenis F . Sheil sEmail : dsheils@kohnswift .comWilliam E . HoeseEmail: whoese@kohnswift .comKOHN, SWIFT & GRAF, P.C.One South Broad Street , Suite 2100Philadelphia, PA 19107Telephone : 215-238-1700Facsimile : 215-238-1968

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E-Filing

Attorneys for Plaintiff The Edward J. Goodman Life Income Trust

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNI A

THE EDWARD J . GOODMAN LIFEINCOME TRUST, Derivatively on Behalf ofNVIDIA CORPORATION ,

Plaintiff,

vs.

JEN-HSUN HUANG ; STEVEN CHU;TENCH COXE; JAMES C. GAITHER;HARVEY C. JONES; WILLIAM J . MILLER ;MARK L. PERRY; A. BROOKE SEAWELL ;and MARVIN D. BURKETT ,

-and-Defendants,

NVIDIA CORPORATION , a Delawarecorporation,

611 0

VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT FOR VIOLATION OF THEFEDERAL SECURITIES LAWS

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Plaintiff, The Edward J . Goodman Life Income Trust , (hereinafter the "Trust" or "Plaintiff') ,

for its derivative action complaint, based upon the investigation of its counsel, alleges as follows :

NATURE OF THE ACTION

1 . This is a shareholder de rivative action brought by a shareholder of NVIDIA

Corporation ("NV IDIA" or the "Company") on behalf of the Company against its Board of Directors

and certain of its senior executives (collectively, "Defendants") to remedy Defendants' violations of

federal and state law, including breaches of fiduciary duty, abuse of control, constructive fraud,

corporate waste and unjust enrichment. Defendants embarked on a fraudulent scheme whereby the

Company backdated stock option grants in order to provide the recipients with a more profitable

exercise price. Defendants also participated in the concealment of the backdating options scheme

I complained of herein and/or refused to take advantage of the Company's legal rights to require thes e

senior insiders to disgorge the millions in illicitly obtained incentive compensation and proceed s

1 diverted to them since 1999 .

2. Between 1999 and the present, Defendants also caused NVIDIA to file false and

misleading statements with the Securities and Exchange Commission ("SEC"), including Proxy

Statements filed with the SEC which stated that the options granted by NVIDIA carried with them

an exercise price that "was equal to the closing price of [NVIDIA's] common stock as reported by

the NASDAQ for the last market trading day prior to the date of the grant . "

3. In fact, Defendants were aware that the practices employed by the Board allowed th e

I stock option grants to be backdated to dates when the Company's shares were trading at or near th e

I lowest price for that relevant period . By August 2006, Defendants' backdating scheme had yielded

I stock option grants to the Company's executive officers worth millions of dollars .

4. Defendants' misrepresentations and wrongful course of conduct violated the

Securities Exchange Act of 1934 (the "Exchange Act"), as well as California and Delaware law. By

authorizing and/or acquiescing in the stock option backdating scheme, Defendants : (i) caused

NVIDIA to issue false statements ; (ii) diverted millions of dollars of corporate assets to senior

NVIDIA executives ; and (iii) subjected NVIDIA to potential liability from regulators including the

SEC, the IRS and federal prosecutors .

VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT FOR VIOLATION OF THEFEDERAL SECURITIES LAWS 2

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5 . On August 10, 2006, NVIDIA issued a press release announcing that :

The Audit Committee of the Board of Directors is conducting a voluntary reviewof the Company's stock option practices covering time from the Company'sinitial public offering in 1999 through the current fiscal year. The AuditCommittee in conducting this review with the assistance of outside legal counsel .The Company has voluntarily contacted the Securities and Exchange Commissionstaff to inform them about the ongoing review .

Although the review is ongoing, the Audit Committee has reached a preliminaryconclusion that incorrect measurement dates were used for financial accountingpurposes for stock grants in certain prior periods . As a result, NVIDIA mayrecord additional non-cash stock-based compensation expense related to stockoption grants . Any additional non-cash stock-based compensation expenserecorded will not affect the Company's cash position or reported revenue forthe recently completed quarter or any previous periods .

JURISDICTION AND VENU E

6. The claims asserted herein arise under §§10(b), 14(a) and 20(a) of the Exchange Act .

15 U.S.C. §§78j(b), 78n (a), and Rule lOb-5, 17 C .F.R . §240. 10b-5, promulgated thereunder, and

under California and Delaware law for violations of breach of fiduciary duty, abuse of control,

constructive fraud , corporate waste , unjust enrichment and gross mismanagement . In connection

with the acts , conduct and other wrongs complained of herein , Defendants , directly or indirectly,

used the means and instrumentalities of interstate commerce, the United States mail and the facilitie s

1 of a national securities market .

7. This Court has subject matter ju risdiction pursuant to §27 of the Exchange Act, 1 5

U.S.C . §78aa, as well as 28 U .S.C. §§1331 and 1337 . This Court also has supplemental jurisdiction

over the state law claims asse rted herein pursuant to 28 U.S .C. § 1367 .

8. This action is not a collusive one to confer jurisdiction on a court of the United States

I which it would not otherwise have .

9. Venue is proper in this district pursuant to §27 of the Exchange Act, 15 U.S.C. §78aa,

as well as .28 U.S .C. § 1391(b) . Many of the acts charged herein, including the preparation and

dissemination of materially false and misleading information, occurred in substantial part in this

District. NVIDIA is located in and conducts its business in this District. Further, Defendants

conduct business in this District, and are citizens of California and reside in this District .


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PARTIES

Plaintiff

10. Plaintiff, The Trust, is and at all times relevant hereto, was a shareholder of nomina l

defendant NVIDIA.

The Nominal Defendan t

11 . Nominal defendant NVIDIA is a Delaware corporation with its principal executive

offices located at 2701 San Tomas Expressway, Santa Clara, California 95050 . NVIDIA is the

worldwide leader in programmable graphics processor technologies .

The Individual Defendants

12. Defendant Jen-Hsun Huang ("Huang") co-founded NVIDIA in April 1993 and has

served as President and Chief Executive Officer since that time .

13 . Defendant Steven Chu ("Chu") has been a director of the Company since July 2004 .

14 . Defendant Tench Coxe ("Coxe") has been a director of the Company since Jun e

1993. Coxe is a member of the Company's Compensation Committee . ,

15 . Defendant James C . Gaither ("Gaither") is the Lead Director and has been a director

of the Company since December 1998 . Gaither is a member of the Company's Compensation

I Committee .

16. Defendant Harvey C . James ("James") has been a director of the Company since

November 1993 . James is the Chairperson of the Company's Compensation Committee.

17. Defendant William J. Miller ("Miller") has been a director of the Company sinc e

November 1994 . Miller is the Chairperson of the Company's Audit Committee .

18. Defendant Mark L . Perry ("Perry") has been a director of the Company since May

2005. Perry is a member of the Company's Audit Committee .

19. Defendant A. Brooke Seawell ("Seawell") has been a director of the Company since

December 1997 . Seawell is a member of the Company's Audit Committee .

20. Defendant Marvin D. Burkett ("Burkett") is the Company's Chief Financial Office r

("CFO") .

21 . Huang, Chu , Coxe , Gaither, Jones, Miller, Perry, Seawell and Burkett are collectivel y


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referred to herein as the "Defendants." Because of the Defendants' positions within the Company,

they had access to adverse undisclosed material information about its business, operations, financial

statements and stock option grants . They were privy to such undisclosed information from internal

corporate documents, communications with other officers and employees of the Company and

attendance at, and documents received during, management and Board of Directors' meetings .

22. The purpose of the Compensation Committee is to assist the Board in fulfilling its

oversight responsibilities relating to NVIDIA's compensation policies . The Compensation

Committee determines compensation for all of NVIDIA 's senior officers and provides guidance to

management on general compensation matters . The Compensation Committee has administered the

Company's stock option plans and granted stock options to Company's officers . As members of the

Compensation Committee, Coxe, Gaither and Jones participated in decisions regarding the options

grants, including the setting of option grant dates and exercise prices .

23 . The purpose of the Audit Committee is to assist the Board in fulfilling its oversight

responsibilities relating to NVIDIA's financial accounting , reporting and controls . As members of

the Audit Commi ttee, Miller, Perry and Seawell knew or should have known that NVIDIA's

financial statements were inaccurate and certain stock option grants were improper , and thereby

permitted or condoned the unlawful practices desc ribed herein .

24. As CFO, Burkett was responsible for the Company's financial statements and for

I ensuring that the periodic reports filed with the SEC containing such financial statements complie d

fully with the disclosure requirements of the federal securities laws.

25 . The Defendants signed and/or reviewed the Company's SEC filings containing the

financial results, as alleged herein . Because the under-repo rt ing of compensation expense and over-

reporting of net income is a departure from GAAP , the Defendants were responsible for such

departures . Additionally, since the departures related to the Company 's stock option program, which

the Defendants themselves manipulated , the Defendants knew, or with deliberate recklessness,

approved of the financial statements and issuing the false and misleading statements set forth herein .

DEFENDANTS' DUTIE S

26. Each officer and director of NVIDIA named herein owed the Company and NV IDIA


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shareholders the duty to exercise a high degree of care, loyalty and diligence in the m anagement and

administration of the affairs of the Company, as well as in the use and preservation of its property

and assets . The conduct of NVIDIA's directors and officers complained of herein involves knowing,

intentional and culpable violations of their obligations as officers and directors of NVIDIA . Further,

the misconduct NVIDIA' s officers has been ratified by NVIDIA' s Board , which has failed to take

any legal action on behalf of the Company against them .

27. By reason of their positions as officers, directors and fiduciari es of NVIDIA and

because of their ability to control the business and corporate affairs of the Company, the Defendant s

I I owed NVIDIA an d its shareholders fiduciary obligations of candor, trust, loyalty and care , and were

I I required to use their ability to control and manage NVIDIA in a fair, just, honest and equitable

manner, and to act in furtherance of the best interests of NVIDIA and its shareholders so as to

benefit all shareholders equally and not in furtherance of their personal interest or benefit . In

I addition, as officers and/or directors of a publicly held company, the Defendants had a duty t o

I refrain from utilizing their control over NVIDIA to divert assets to themselves via improper and/or

I unlawful practices . Defendants also had a duty to promptly disseminate accurate and truthfu l

information with respect to the Company's operations, earnings and compensation practices .

28. Because of their positions of control and authority as directors or officers of NVIDIA ,

each of the Defendants was able to and did, directly and indirectly, control the wrongful acts

complained of herein . These acts include: (i) agreement to and/or acquiescence in Defendants'

option backdating scheme; and (ii) willingness to cause NVIDIA to disseminate false Proxy

Statements for 1999-2006 which Proxy Statements failed to disclose Defendants' option backdating

scheme and omitted the fact that executive officers were allowed to backdate their stock options

grants in order to manipulate the strike price of the stock options they received . Because of their

positions with NVIDIA, each of the Defendants was aware of these wrongful acts, had access to

adverse non-public information and was required to disclose these facts promptly and accurately to

NVIDIA shareholders and the financial markets but failed to do so .

29. Between 1999 and 2006, Defendants repeated in each Proxy Statement that th e

"exercise p rice of each option was equal to the closing p rice of [NVIDIA 's] commons stock as


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reported by NASDAQ for the last market-trading day prior to the date of the grant ." However,

Defendants concealed that the stock option grants were repeatedly and consciously backdated to

ensure that the strike price associated with the option grants was at or near the lowest trading price

for that fiscal period . Due to Defendants' breach of their fiduciary duty in the administration of the

stock option plans, plaintiff seeks to have the directors' and officers' plans voided and gains from

those plans returned to the Company . In the alternative, plaintiff seeks to have all of the unexercised

options granted to Defendants between 1999 and 2006 cancelled, the financial gains obtained via the

exercise of such options returned to the Company and to have Defendants revise the Company's

financial statements to reflect the truth concerning these option grants .

30. The conduct of the Defendants complained of herein involves a knowing and culpabl e

violation of their obligations as directors and/or officers of NVIDIA, and a reckless disregard for

their duties to the Company and its shareholders, which Defendants were aware or should have been

aware posed a risk of serious injury to the Company. The conduct of the Defendants who were also

officers and/or directors of the Company during the relevant period has been ratified by NVIDIA's

Board of Directors during the relevant period .

31 . Defendants breached their duties of loyalty and good faith by allowing or b y

themselves causing the Company to misrepresent its financial results and prospects, and by failing to

prevent the Defendants from taking such illegal actions . In addition, as a result of Defendants'

illegal actions and course of conduct during the relevant period, the Company is now the subject of

SEC and Department of Justice investigations . As a result, NVIDIA has expended and will continue

to expend significant sums of money .

32. These actions have irreparably damaged NVIDIA's corporate image and goodwill .

NVIDIA' s ability to raise equity capital or debt on favorable terms in the future is now impaired .

FACTS

33. A stock option granted to a director or officer of a corporation allows the directors o r

officers to purchase company stock at a specified price (the "exercise price") for a specified period

of time. Stock options are granted as part of compensation packages as a means to create incentive s

to boost profitability and stock value .


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34. When the director or officer exercises the option, he or she purchases the stock from

the company at the exercise price, regardless of the stock's rise at the time the option is exercised .

The lower the exercise price, the more profit directors or officers can potentially make and the les s

money the company gets when the stock option is exercised .

35 . During the Class Period , Defendants caused NVIDIA to embark on a fraudulent

scheme whereby the Company backdated stock option grants to the Defendants and/or othe r

directors or executives in order to provide the recipients with a more profitable exercise price.

36. In public filings with the SEC, including, but not limited to, the Company's definitiv e

proxy statements, the Company represented that the "exercise price of each option was equal to th e

I closing price of [NVIDIA 's] common stock as reported by NASDAQ for the last market-trading day

prior to the date of the grant . "

37 . However, during the Class Period , Defendants granted options but later set th e

I exercise price to the fair market value of the stock on the day at which the stock price wa s

particularly low and just before a quick run-up in the stock price, not the actual date of the grant .

38. Accordingly, the option grants ensured that the grantees were able to profit from

increases in the Company stock price with the benefit of hindsight .

39. Therefore, Defendants ' representations that the exercise price of all stock options

would be closing price of the Company's common stock as reported by NASDAQ for the last

market-trading day prior to the date of the grant . As a result, Defendants and/or other directors,

executives and employees paid less, and the Company received less, money for the stock when the

options were exercised.

40. In addition, Defendants caused the Company to falsify its financial statements b y

failing to properly record expenses related to these backdated option grants, which resulted in the

overstatement of the Company 's profits . Specifically , when options are priced below the stock's last

market-trading day prior to the date of the grant, the recipient receives an instant gain . Under

Generally Accepted Accounting Principles ("GAAP"), this gain represents additional compensation

and must be treated as an expense by the Company . The Company did not account for the amount

by which the market price of its stock exceeded the exercise price of the options , thereby causing the

VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT FOR VIOLATION OF TH EFEDERAL SECURITIES LAWS 8

I Company to understate its expenses and to overstate its net income.

2 41. Defendants breached their duties of loyalty and good faith by allowing or by

3 themselves causing the Company to misrepresent its financial results and prospects, as detailed

4 herein, and by failing to prevent the Defendants from taking such illegal actions . Such expenditures

5 include, but are not limited to :

6 (a) improvidently paid executive compensation ;

7 (b) increased capital costs as a result of the loss of market capitalization and the

8 Company's damaged reputation in the investment community ;

9 (c) professional costs associated with any SEC inquiry ;

10 (d) costs incurred to carry out internal investigations, including legal fees paid to

11 ' outside counsel ; and

12 (e) incurring possible IRS penalties for improperly repo rt ing compensation.

13 42. NVIDIA's internal controls and accounting controls with respect to option grants and

14 exercises , and its financial repo rt ing , were grossly inadequate . The weaknesses allowed dates of

15 both grants and exercises to be manipulated and the Company ' s executive compensation expenses to

16 be materially understated . They also allowed grant dates to be changed to provide executives with

17 more favorable priced options , in effect augmenting their compensation , with no benefit running to

18 the Company.

19 43. Since 1996, Defend ants caused NVIDIA to report false and misleading financial

20 results which materially understated its compensation expenses and thus overstated its ea rnings as

21 follows :

22 Year Reported Earnings Reported Dilute d[ Ending January 30th) (in thousands) EPS23

241999 $ 4,130 $ 0.08

25 2000 $ 40,959 (restated) $ 0.28 (restated)2001 $ 98,469 (restated) $ 0.62 (restated)

26 2002 $ 176,924 $ 1 .03

272003 $ 90,799 $ 0.542004 $ 74,419 $ 0.43

28 2005 $ 100,356 $ 0 .572006 $ 302 ,586 $ 1 .65


1 44. In effect, between 1999 and 2006, Defendants caused NV IDIA shares to trade at

2 artificially inflated levels by issuing a series of materially false and misleading statements regarding

3 the Company's financial results . These financial results misrepresented and omitted to disclose that

4 the Company had problems with its internal controls that prevented it from issuing accurate financial

5 reports and that because of improperly recorded stock-based compensation expenses the Company's

6 publicly reported financial statements and results presented an inflated view of NVIDIA's earnings

7 and EPS .

8 45. On August 10, 2006, NVIDIA issued a press release announcing that it had contacted

9 the SEC regarding past option grant practices ; and, that the Audit Committee had "reached a

10 preliminary conclusion that incorrect measurement dates had been used for financial accounting

I 1 purposes for stock option grants in certain prior periods . "

12 46. The members of NVIDIA's Board of Directors refuse to take any remedial actions

13 against their fellow board members and business allies responsible for the improper reporting of the

14 Company's stock based compensation since 1999, although many of these same Defendants

15 pocketed millions in unlawful insider trading proceeds by bailing out of their own NVIDIA stock

16 while it traded at prices artificially inflated by Defendants' false statements about NVIDIA's

17 financial results .

18 DERIVATIVE AND DEMAND FUTILITY ALLEGATIONS

19 47. Plaintiff incorporates IT 1-47 .

20 48. Plaintiff brings this action derivatively in the right and for the benefit of NV IDIA to

21 redress injuries suffered and to be suffered by NVIDIA as a direct result of Defendants' violations of

22 state and federal law, breaches of fiduciary duty, abuse of control, constructive fraud, gross

23 mismanagement, corporate waste and unjust enrichment, as well as the aiding and abetting thereof,

24 by the Defendants .

25 49. Plaintiff will adequately and fairly represent the interests of NVIDIA and its

26 shareholders in enforcing and prosecuting its rights .

27 50. Plaintiff is an owner of NVIDIA stock and was an owner of NVIDIA stock during

28 times relevant to Defendants illegal and wrongful course of conduct alleged herein .


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51 . Based upon the facts set forth throughout this Complaint, a pre-filing demand upo n

the NVIDIA's Board of Directors to institute this action against the officers and members of the

NVIDIA's Board of Directors is excused as futile. A pre-filing demand would be a useless and

futile act because :

(a) The members of the NVIDIA Board of Directors have demonstrated their

unwillingness and/or inability to act in compliance with their fiduciary obligations and/or to sue

themselves and/or their fellow directors and allies in the top ranks of the corporation for the

violations of law complained of herein . These are people they have developed professional

relationships with, who are their friends and with whom they have entangling financial alliances ,

I I interests and dependencies, and therefore, they are not able to and will not vigorously prosecute an y

such action .

(b) The NVIDIA Board of Directors and senior management participated in ,

approved and/or permitted the wrongs alleged herein to have occurred and participated in efforts to

conceal or disguise those wrongs from NVIDIA's stockholders or recklessly and/or negligently

disregarded the wrongs complained of herein, and are therefore not disinterested parties . As a result

of their access to and review of internal corporate documents, conversations and connections with

other corporate officers, employees, and direct, and attendance at Board meetings, each of the

Defendants knew the adverse non-public information regarding the improper stock option grants and

financial reporting . Pursuant to their specific duties as Board members, Defendants are charged with

the management of the Company and to conduct its business affairs. Defendants breached the

fiduciary duties that they owed to NVIDIA in that they failed to prevent and correct the improper

stock option granting and financial reporting . Certain directors are also dominated and controlled by

other Defendants and cannot act independently of them . Thus, the NVIDIA Board cannot exercise

independent objective judgment in deciding whether to bring this action or whether to vigorously

prosecute this action because each of its members participated personally in the wrongdoing or are

dependent upon other Defendants who did .

(c) The acts complained of constitute violations of the fiduciary duties owed b y

NVIDIA's officers and directors and these acts are incapable of ratification .

VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT FOR VIOLATION OF THEFEDERAL SECURITIES LAWS 1 I

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(d) The members of NVIDIA' s Board have benefited, and will continue to

benefit, from the wrongdoing herein alleged and have engaged in such conduct to preserve thei r

positions of control and the perquisites derived thereof, and are incapable of exercising independen t

objective judgment in deciding whether to bring this action .

(e) Any suit by the current directors of NVIDIA to remedy these wrongs would

likely further expose the liability of Defendants under the federal securities laws, which could result

in additional civil and/or criminal actions being filed against one or more of the Defendants . Thus,

they are hopelessly conflicted in making any supposedly independent determination on whether to

sue themselves .

(f) NVIDIA has been and will continue to be exposed to significant losses due to

the wrongdoing complained of herein, yet NVIDIA's Board has not filed any lawsuits against

Defendants or others who were responsible for that wrongful conduct to attempt to recover fo r

NVIDIA any part of the damages NVIDIA suffered and will suffer thereby .

(g) In order to properly prosecute this lawsuit, NVIDIA's directors would have to

I sue themselves and the other Defendants, requiring them to expose themselves and their comrades t o

I millions of dollars in civil liability and/or sanctions . This they will not do.

(h) NVIDIA's current and past officers and directors are protected agains t

personal liability for their acts of mismanagement, waste and breach of fiduciary duty alleged in this

Complaint by directors' and officers' liability insurance which they caused the Company to purchase

for their protection with corporate funds, i.e., monies belonging to the stockholders of NVIDIA .

However, due to certain changes in the language of directors' and officers' liability insurance

policies in the past few years, the directors' and officers' liability insurance policies covering the

Defendants in this case, to the extent they exist, may contain provisions which eliminate coverage

for any action brought directly by NVIDIA against these Defendants, known as, inter alia, the

"insured versus insured exclusion ." As a result, if these directors were to sue themselves or certain

of the officers of NVIDIA, there would be no directors' and officers' insurance protection and thus,

this is a further reason why they will not bring such a suit . On the other hand, if the suit is brought

derivatively, as this action is brought, such insurance coverage exists and will provide a basis for th e


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Company to effectuate a recovery .

(i) To b ring this action for breaching their fiduciary duties, the members of the

NVIDIA's Board would have been required to sue themselves and/or their fellow directors and allie s

in the top ranks of the Company, who are their personal friends and with whom they have entangling

financial alliances, interests and dependencies , which they would not do .

52. Plaintiff has not made any demand on shareholders of NVIDIA to institute this action

since such demand would be a futile and useless act for the following reasons :

(a) NVIDIA is a publicly traded company with approximately 204 million shares

outstanding , and thousands of shareholders ;

(b) Making demand on such a number of shareholders would be impossible for

plaintiff who has no way of finding out the names, addresses or phone numbers of shareholders ; and

(c) Making demand on all shareholders would force plaintiff to incur huge

expenses, assuming all shareholders could be individually identified .

THE STOCK OPTION BACKDATING AND ITS IMPACTON NVIDIA'S FINANCIAL STATEMENT S

The 1999 Form 10-K40 5

53. On or about Ap ri l 29, 1999, the Company filed its annual report Form 10-K405 with

the SEC . The 1999 Form 10-K405 was simultaneously distributed to shareholders and the public .

The 1999 Form 10-K405 included NVIDIA's financial statements which were materially false and

misleading and presented in violation of GAAP, due to improper accounting for the backdated stock

options . As a result , NVIDIA 's compensation expense was understated and its net earnings were

I overstated . The Form 10-K405 was signed by Huang, Christine B . Hoberg, Gaither, Jones, Miller

I and Seawell .

I The 2000 Form 10-K405

54. On or about March 13, 2000, the Company filed its annual report on Form 10-K405

for the period ending January 30, 2000 with the SEC . The 2000 Form 10-K405 was simultaneously

distributed to shareholders and the public. The 2000 Form 10-K405 included NVIDIA's financial

statements which were materially false and misleading and presented in violation of GAAP, due t o


.1 improper accounting for the backdated stock options. As a result , NVIDIA 's compensation expense

2 was understated and its net earnings were overstated . The Form 10-K405 was signed by Huang,

3 Christine B. Hoberg, Coxe, Jones, Miller , Seawell and Mark A . Stevens .

4 The 2001 Forms 10-K405 and 10-K405/A

5 55. On or about April 27, 2001, the Company filed its annual report Form 10-K 405 for

6 the period ending January 28, 2001 with the SEC . On May 25, 2001, the Company filed an amended

7 annual report on Form 10-K405/A with the SEC . The 2001 Forms 10-K405 and 10-K405/A were

8 distributed to shareholders and the public . The 2001 Forms 10-K405 and 10-K405/A include d

9 NVIDIA's financial statements which were materially false and misleading and presented in

10 violation of GAAP, due to improper accounting for the backdated stock options . As a result,

11 NVIDIA's compensation expense was understated and its net earnings were overstated . The Forms

12 10-K405 and 10-K405/A were signed by Huang, Christine B . Hoberg, Coxe, Jones, Miller, Seawel l

13 I I and Mark A . Stevens .

14 11 The 2002 Form 10-K

15 56. On or about May 14, 2002, the Company filed its annual report Form 10-K for the

16 period ending January 27, 2002 with the SEC. The 2002 Form 10-K was simultaneously distributed

17 to shareholders and the public . The 2002 Form 10-K included NVIDIA 's financial statements which

18 were materially false and misleading and presented in violation of GAAP , due to improper

19 accounting for the backdated stock options . As a result, NVIDIA's compensation expense was

20 understated and its net earn ings were overstated. The Form 10 -K was signed by Huang, Mary Dotz,

21 Coxe, Gaither, Jones, Miller, Seawell and Mark A . Stevens.

22 The 2003 Form 10-K

23 57. On or about April 25, 2003, the Company filed its annual report on Form 10-K for the

24 period ending with January 26, 2003 with the SEC . The 2003 Form 10-K was simultaneously

25 distributed to shareholders and the public . The 2003 Form 10-K included NVIDIA's financial

26 statements which were materially false and misleading and presented in violation of GAAP, due to

27 improper accounting for the backdated stock options . As a result, NVIDIA's compensation expense

28 was understated and its net earnings were overstated. The Form IO-K was signed by Huang,


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Burkett, Coxe, Gaither, Jones, Miller, Seawell and Mark A . Stevens . By signing the certifications

pursuant to the Sarbanes-Oxley Act, Huang and Burkett certified that the annual report contained no

misstatements or omissions of material fact . Huang and Burkett further certified that they had

disclosed all instances of fraud including management or other employees who had a significant role

in the Company's internal control over financial reporting

The 2004 Forms 10-K and 10-K/A

58. On or about March 20, 2004, the Company filed its annual report Form 10-K for the

pe ri od ending January 25, 2004 with the SEC. On May 20, 2004, the Company filed an amended

I Form 10-K/A for the period ending January 25, 2004 . The 2004 Forms 10-K and 10-K/A wer e

I distributed to shareholders and the public. The 2004 Form 10-K and 10-K/A included NVIDIA' s

11 financial statements which were mate rially false and misleading and presented in violation o f

GAAP, due to improper accounting for the backdated stock options . As a result , NVIDIA' s

compensation expense was understated and its net earn ings were overstated . The Form 10-K and

10-K-A were singed by Huang , Burkett , Coxe, Gaither, Jones , Miller, Seawell and Mark A. Stevens .

By signing the certifications pursuant to the Sarbanes-Oxley Act, Huang and Burkett certified tha t

the annual report contained no misstatement or omissions of material fact . Huang and Burkett

further certified that they had disclosed all instances of fraud including management or other

employees who had a significant role in the Company's internal control over financial reporting .

The 2005 Form 10- K

59. On or about March 22, 2005, the Company filed its annual report Form 10-K for th e

period ending January 30, 2005 with the SEC . The 2005 Form 10-K was simultaneously distributed

to shareholders and the public . The 2005 Form 10-K included NVIDIA's financial statements which

were materially false and misleading and presented in violation of GAAP, due to improper

accounting for the backdated stock options. As a result, NVIDIA' s compensation expense was

understated and its net earnings were overstated . The Form 10-K was signed by Huang, Burkett,

Coxe, Chu, Gaither, Jones , Miller, Seawell and Mark A . Stevens . By signing the cert i fications

pursuant to the Sarbanes -Oxley Act, Huang and Burkett certified that the annual repo rt contained no

misstatements or omissions of mate rial fact . Huang and Burkett further certified that they had


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I disclosed all instances of fraud including management or other employees who had a significant rol e

I in the Company's internal control over financial reporting .

I The 2006 Form 10-K

60. On or about March 16, 2006, the Company filed its annual report on Form 10-K fo r

the period ending January 29, 2006 with the SEC. The 2006 Form 10-K was simultaneously

distributed to shareholders and the public . The 2006 Form 10-K included NVIDIA's financial

statements which were materially false and misleading and presented in violation of GAAP, due to

improper accounting for the backdated stock options. As a result, NVIDIA's compensation expense

was understated and its net earnings were overstated . The Form 10-K was signed by Huang,

Burkett, Coxe, Chu, Gaither, Perry, Jones, Miller and Seawell . Also, by signing the certification

pursuant to the Sarbanes-Oxley Act, Huang and Burkett certified that the information contained in

the annual report fairly presented in all material respects NVIDIA's financial condition and results.

Huang and Burkett further certified that they had disclosed all instances of fraud involving

management or other employees who had a significant role in the Company's internal control over

financial reporting.

THE TRUTH BEGINS TO EMERGE

61 . The 1999-2006 Proxy Statements concealed Defendants' option backdating scheme .

Thus, the Company's shareholders remained unaware of Defendan ts ' wrongdoing when voting on

proxy proposals between 1999 and 2006 . In fact , it was not until the August 10, 2006 press release

that shareholders teamed that the Proxy Statements which they had relied upon for nearly a decade

were false and misleading . Defendants have been unjustly enriched at the expense of NVIDIA,

which has received and will receive less money from the Defendants when they exercise their

options at prices substantially lower than they would have if the options had not been backdated .

Each dollar diverted to Defendants via the option backdating scheme has come at the expense of the

Company .

THE ADVERSE IMPACT OF DEFENDANTS' MISCONDUC T

62 . Given the many times NVIDIA's grants were the low of the month in which option s

were granted, the date of their stock option grants was clearly more than merely coincidental .


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63 . As a result of the backdating of options, Defendants have been unjustly enriched a t

the expense of NVIDIA, which has received and will receive less money from Defendants when the y

exercise their options at prices substantially lower than they would have if the options had not bee n

backdated .

TOLLING OF THE STATUTE OF LIMITATIONS

64. The Counts alleged herein are timely . Defendants wrongfully concealed thei r

manipulation of the stock option plans , through strategic timing and fraudulent backdating, by

issuing false and misleading Proxy Statements , by falsely reassuring NVIDIA' s public investors that

NVIDIA' s option grants were being administered by a committee of independent directors, and by

failing to disclose that backdated options were , in fact, actually issued on dates other th an those

disclosed , and that strategically timed option grants were issued based on the manipulation of insider

information that ensured that the true fair market value of the Company 's stock was, in fact, higher

than the publicly traded price on the date of the option grant .

65. NVIDIA's public investors had no reason to know of the Defendants ' breach of thei r

fiduciary duties until August 10, 2006, when the Company disclosed that it had contacted the SEC

to inform the SEC of the Audit Committee's review and that "the Audit Committee ha[d] reached a

preliminary conclusion that incorrect measurement dates were used for financial accounting

purposes for the stock option grants in certain prior periods ."

66. Finally, as fiduciari es of NVIDIA and its public shareholders , the Defendants cannot

rely on any limitations defense where they withheld from NVIDIA's public shareholders the facts

that give rise to the claims asserted herein, i.e., that the NVIDIA Board had abdicated its fiduciary

responsibilities to oversee the Company's executive compensation practices, and that the option

grant dates had been manipulated to maximize the profit for the grant recipients and, accordingly, to

maximize the costs for the Company .


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COUNT I

Violations of §10(b) and Rule 10b-5 of the Exchange ActAgainst All Defendants

67. Plaintiff incorporates by reference and realleges each and every allegation set forth

above, as though fully set forth herein .

68. Throughout the relevant period, Defendants individually and in concert, directly an d

indirectly, by the use and means of instrumentalities of interstate commerce and/or of the mails,

engaged and participated in a continuous course of conduct designed to divert hundreds of millions

of dollars to Defendants via improper option grants .

69 . Defendants employed devices, schemes and artifices to defraud while in possession of

material, adverse non-public information and engaged in acts, practices and a course of conduct tha t

I I included the making of, or participation in the making of, untrue and/or misleading statements o f

I I material facts and/or omitting to state material facts necessary in order to make the statements mad e

I about NVIDIA not misleading .

70. Defendants, as top executive officers and directors of the Company, are liable a s

direct participants in the wrongs complained of herein . Through their positions of control and

authority as directors and/or officers of the Company, each of the Defendants was able to and di d

f control the conduct complained of herein and the content of the public statements disseminated b y

I NVIDIA.

71 . Defendants acted with scienter throughout the relevant period, in that they either had

actual knowledge of the misrepresentation and/or omissions of material facts set forth herein, or

acted with reckless disregard for the truth in that they failed to ascertain and to disclose the true

facts, even though such facts were available to them. Defendants were among the senior

management of the Company, and were therefore directly responsible for the false and misleading

statements and/or omissions disseminated to the public through press releases, news reports and

filings with the SEC .

72. Each of the Defendants participated in a scheme to defraud with the purpose an d

I effect ofdefrauding NVIDIA.


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73. By virtue of the foregoing , Defendants have violated § 10(b) of the Exchange Act, and

Rule 10b -5 promulgated thereunder .

COUNT II

Violations of §14(a) of the Exchange Act AgainstAll Defendants



75. Rule 14a-9, promulgated pursuant to § 14(a) of the Exchange Act, provides that no

proxy statement shall contain "any statement which, at the time and in the light of the circumstances

under which it is made, is false or misleading with respect to any material fact, or which omits to

state any material fact necessary in order to make the statements therein not false or misleading ." 17

C.F.R. §240.14a-9 .

76. The 1999-2006 Proxy Statements violated §14(a) and Rule 14a-9 because they

omitted material facts, including the fact that Defendants were causing NVIDIA to engage in an

option backdating scheme, a fact which Defendants were aware of and participated in from at least

1999 .

77. In the exercise of reasonable care, Defendants should have known that the Proxy

Statements were materially false and misleading .

78. The misrepresentations and omissions in the Proxy Statements were material to

plaintiff in voting on each Proxy Statement . The Proxy Statements were an essential link in the

accomplishment of the continuation of Defendants' unlawful stock option backdating scheme, as

revelations of the truth would have immediately thwarted a continuation of shareholders'

endorsement of the directors' positions, the executive officers' compensation and the Company's

compensation policies .

79. The Company was damaged as a result of the material misrepresentations and

omissions in the Proxy Statements .


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COUNT II I

Violations of §20(a) of the Exchange Act Against the Individual Defendants

80. Plaintiff incorporates by reference and realleges each and every allegation set fort h


81 . Plaintiff brings this claim against the Individual defendants .

82. The defendants named in this Count, by virtue of their positions with NVIDIA and

their specific acts, were at the time of the wrongs alleged herein , controlling persons of NVIDIA

within the meaning of §20(a) of the Exch ange Act. They had the power and influence and exercised

the same to cause NVIDIA to engage in the illegal conduct and practices complained of herein .

COUNT IV

Accounting



84. At all relevant times, Defendants , as directors and/or officers of NVIDIA, owed the

Company and its shareholders fiduciary duties of good faith, care, candor and loyalty .

85 . In breach of their fiduciary duties owed to NV IDIA and its shareholders, the

Defendants caused NVIDIA, among other things, to grant backdated stock options to themselves

and/or certain other officers and directors of NVIDIA . By this wrongdoing, the Defendants

breached their fiduciary duties owed to NV IDIA and its shareholders.

86 . The Defendants possess complete and unfettered control over their improperly issued

stock option grants and the books and records of the Company concerning the details of suc h

improperly backdated stock option grants to the Defendants .

87. As a result of Defendants ' misconduct , NVIDIA has been substantially injured and

damaged financially and is entitled to a recovery as a result thereof, including the proceeds of thos e

improperly granted options which have been exercised and sold .

88 . Plaintiff demands an accounting be made of all stock options grants made to

Defendants, including, without limitation, the dates of the grants, the amounts of the grants, the

value of the grants, the recipients of the grants, the exercise date of stock options granted to th e


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Defendants, as well as the disposition of any proceeds received by the Defendants via sale or other

exercise of backdated stock option grants received by the Defendants .

COUNT V

Breach of Fiduciary Duty Against All Defendants



90. Each of the Defendants engaged in a deliberate course of action designed to divert

corporate assets in breach of the fiduciary duties the Defendants owed to the Company .

91 . The Defendants have violated fiduciary duties of care, loyalty, candor an d

independence owed to NVIDIA and its public shareholders , have engaged in unlawful self-dealing

and have acted to put their personal interests and/or their colleagues ' interests ahead of the interests

of NVIDIA and its shareholders .

92 . Defendants failed to exercise the care required, and breached their duties of loyalty,

good faith, candor and independence owed to NVIDIA and its public shareholders, and they failed to

disclose material information and/or made material misrepresentations to shareholders regardin g

Defendants' option backdating scheme .

93. By reason of the foregoing acts, practices and course of conduct, the Defendants have

failed to exercise ordinary care and diligence in the exercise of their fiduciary obligations toward

I NVIDIA and its public shareholders .

94. As a proximate result of Defendants' conduct NVIDIA has been injured and is

I entitled to damages.

COUNT VI

Abuse of Control Against All Defendants



96. The Defendants employed the alleged scheme for the purpose of maintaining and

entrenching themselves in their positions of power, prestige and profit at, and control over, NVIDIA,

and to continue to receive the substantial benefits, salaries and emoluments associated with thei r


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positions at NVIDIA. As a part of this scheme , Defendants actively made and/or part icipated in the

making of or aided and abetted the making of, misrepresentations regarding NV IDIA .

97. Defendants' conduct constituted an abuse of their ability to control and influenc e

NVIDIA .

98. By reason of the foregoing , NVIDIA has been damaged .

COUNT VII

Gross Mismanagement Against All Defendant s



100. Defendants had a duty to NVIDIA and its shareholders to prudently supervise,

manage and control the operation, business and internal financial accounting and disclosure controls

of NVIDIA .

101 . Defendants, by their actions and by engaging in the wrongdoing described herein,

abandoned and abdicated their responsibilities and duties with regard to prudently managing the

businesses of NVIDIA in a manner consistent with the duties imposed upon them by law . By

I committing the misconduct alleged herein, Defendants breached their duties of due care, diligenc e

I and candor in the management and administration of NVIDIA's affairs and in the use and

preservation of NVIDIA's assets .

102. During the course of the discharge of their duties, Defendants knew or recklessly

disregarded the unreasonable risks and losses associated with their misconduct, yet Defendant s

caused NVIDIA to engage in the scheme complained of herein which they knew had an

I unreasonable ri sk of damage to NVIDIA, thus breaching their duties to the Company . As a result ,

Defendants grossly mismanaged NVIDIA .

103 . By reason of the foregoing, NVIDIA has been damaged .

COUNT VIII

Constructive Fraud Against All Defendant s




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105 . As corporate fiduciaries , Defendants owed to NVIDIA and its shareholders a duty of

candor and full accurate disclosure regarding the true state of NVIDIA 's business and assets and

their conduct with regard thereto .

106. As a result of the conduct complained of, Defendants made, or aided and abetted th e

making of, numerous misrepresentations to and/or concealed mate rial facts from NVIDIA' s

shareholders despite their duties to disclose the true facts regarding their stewardship of NVIDIA.

Thus they have committed constructive fraud and violated their duty of candor .

107. By reason of the foregoing , NVIDIA has been damaged .

COUNT IX

Corporate Waste Against All Defendants



109. By failing to properly consider the interests of the Company and its public

shareholders, by failing to conduct proper supervision, by giving away millions of dollars to

Defendants via the option backdating scheme, Defendants have caused NVIDIA to waste valuabl e

corporate assets .

110. As a result of Defendants' corporate waste, they are liable to the Company.

COUNT X

Unjust Enrichment Against All Defendant s

111 . Plaintiff incorporates by reference and realleges each and every allegation set forth


112 . As a result of the conduct described above , Defendants will be and have been unjustly

en riched at the expense of NVIDIA, in the form of unjusti fied salaries , benefits, bonuses, stoc k

option grants and other emoluments of office .

113 . Certain Defendants also obtained severance benefits that were not earned or justifie d

but were instead paid as part of a scheme to cover up Defendants' complicity in the scheme .

114. All the payments and benefits provided to the Defendants were at the expense of

NVIDIA. The Company received no benefit from these payments . NVIDIA was damaged by suc h


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payments .

115 . Certain of the Defendants sold NVIDIA stock for a profit during the period of

deception, misusing confidential non-public corporate information . These Defendants should be

required to disgorge the gains which they have and/or will otherwise unjustly obtain at the expense

of NVIDIA. A constructive trust for the benefit of the Company should be imposed thereon .

PRAYER FOR RELIEF

WHEREFORE, plaintiff demands judgment as follows :

A. Awarding money damages against all Defendants, jointly and severally, for all losses

and damages suffered as a result of the acts and transactions complained of herein, together with pre-

judgment interest, to ensure Defendants do not participate therein or benefit thereby;

B. Directing all Defendants to account for all damages caused by them and all profits

and special benefits and unjust enrichment they have obtained as a result of their unlawful conduct,

including all salaries, bonuses, fees, stock awards, options and common stock sale proceeds and

imposing a constructive trust thereon ;

C. Directing NVIDIA to take all necessary actions to reform and improve its corporate

governance and internal control procedures to comply with applicable law ;

D. Ordering the imposition of a constructive trust over Defendants ' stock options and

any proceeds derived there from;

E. Awarding punitive damages ;

F. Awarding costs and disbursements of this action , including reasonable atto rneys',

accountants ', and experts ' fees; and

G. Granting such other and further relief as this Court may deem just and proper.

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DEMAND FOR TRIAL BY JURY

Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, plaintiff hereby demands trial

by jury of all issues that may be so tried .

Dated: September 29, 2006 BERMAN, DeVALERIO, PEASE

TABACCO, BURT & PUCILLO

By

Christopher T . Heffelfinger

Joseph J . Tabacco, Jr .Lesley Hal e425 California Street,Suite 2100San Francisco, CA 94104-2205Telephone : 415-433-320 0

KOHN, SWIFT & GRAF, P.C.

By ~^Denis F. Sheils j, -- 0, 1 k~ w tL

Joseph C . KohnWilliam E . HoeseOne South Broad Street,Suite 2100Philadelphia , PA 19107Telephone : 215-238-1700Fax : 215-238-1968

Attorneys for Plaintiff The Edward J . GoodmanLife Income Trus t


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VERIFICATION

I, Myrna Goodman, Co-Trustee of the Edward J . Goodman Life Income Trust, hereby verify

that I have reviewed the Complaint and authorized its filing on behalf of the Edward J . Goodman Life

Income Trust . I further verify that the foregoing is true and correct to the best of my knowledge,

information and belief.

Date :

Signature

the edward j. goodman life income trust, et al. v. jen

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