For it to not be fraud you'd have to actually exchange services proportional to the line items. That isn't what was described. Falsifying line items to juice your numbers is fraud plain and simple.
The company I'm a director for licenses IP from my company. The company wouldn't exist without my IP (I'm one of the founders). Yet, I'm also a customer of the same. Dollars in/out, we're all kosher. This isn't fraud, it's just how companies work.
So long as the prices are fair and reasonable, sure. But that doesn't enable you to run up an arbitrarily large bill without either doing an arbitrary amount of actual work or committing fraud.
No, there is no proportionality aspect to the law. Once you’re in the support and software subscription realm, quite vast amount of “value” can be charged for with nothing being done.
Only if you ignore the concept of fair market value. There are going rates for these things. If what you said is true you could trivially launder money by selling a single copy of an arbitrarily expensive piece of software that did nothing more than print "hello world". In practice that's not how the law works. Regulators and judges aren't drooling idiots.
Sure, you could inflate your numbers a bit and likely get away with it. But it's still fraud (getting away with it doesn't make it not a crime) and you will likely be caught if you overdo it.
How? "AI fincancing bad" is starting to seem like a new non sequitur meme. There's no imaginary thing being traded for indefensible valuations in AI dealings. Stock units at a certain valuation exchanged for an equivalant value in hardware is just a standard payment-in-kind transaction.
If the valuation turns out to change in the future, that's the hardware seller's risk.
It's not the same thing as buying a $20 million banana from a bahamian llc secretly owned by yourself, which is fraud.
I thought in that case nvidia was (approximately) purchasing stock in exchange for hardware? Which AFAIK is the entire point of stock - selling it to raise needed capital.
And if they actually constructed the deal that way, it would be fine. But by essentially creating a sham sale where they return the cash back to the customer in return for equity, Nvidia can book revenue and claim non-existent cash flow. The key is that the sale would not have happened without the corresponding equity deal. Nvidia had no discretion to use that cash any other way, so the "cash flow" in that case is illusory.
I don't see the issue. Goods valued at that amount changed hands. Why shouldn't bartering be booked as cash flow? The regulator is going to require you to value it for them regardless.
Wall Street places a value on sales, on the assumption that the sale means a customer had the money and the desire to buy the company's goods. In this case, OpenAI had the desire but not the money---Nvidia basically gave them the money to buy the product. So that "sale" should be devalued in the market. What if Nvidia paid more for the stock than the chips were worth? Now they're essentially paying people to buy their product and hiding the bribe in an equity deal by overvaluing the customer. The market sees the big growing sales number and buys Nvidia stock on the assumption that the growth is organic. It also sees Nvidia putting a big valuation on OpenAI, driving up that company's value at well. At some point, OpenAI ends up with more chips than it needs and Nvidia ends up holding a bunch of overvalued OpenAI stock instead of cash. And both stocks eventually crash as a result.
Not really. Or rather I think we both agree and disagree. Dysfunction is always possible (that's why we have regulation) and if you want to make a case that what happened between OpenAI and Nvidia ought to be against the rules that could certainly make for an interesting discussion.
However it's not at all uncommon for large sales agreements to come with additional strings attached. On its face I don't see how this example is any different.
If my company wanted to barter with another company to exchange equity for infrastructure how would you expect that to be reported? Did this situation differ from that expectation?
> What if Nvidia paid more for the stock than the chips were worth?
I'm not sure. It's an interesting question. Were the unit prices (ie chip and stock quantities) made public?
>If my company wanted to barter with another company to exchange equity for infrastructure how would you expect that to be reported? Did this situation differ from that expectation?
As I mentioned, I would have no problem if that's what happened. But it isn't. Nvidia recorded the cash as ordinary income. They did NOT record the stock as income. Cash has a clear value; stock does not. You keep reducing the transaction to its effective outcome, which is not where the problem lies, as I outlined above.
I haven't reduced it rather I've asked you why you think it shouldn't be reduced.
So your objection is the way in which they did the accounting? This is not an area I'm particularly familiar with. Does the way they went about it fall outside of the norm for the US? Or is your objection a more general one regarding the US regulations on the matter?
I understand you object but I don't quite follow why. When it comes to manipulating the OpenAI valuation couldn't Nvidia have intentionally overpayed for the stock in cash? Wouldn't that have provided the exact same quantity of capital, the exact same investment, the exact same valuation?
Maybe it would be different if their GPUs weren't in such demand but they are. Even in such a case, they could have structured the transaction as a series of smaller independent ones. Same ultimate outcome.
