A lawsuit alleging Nvidia violated US securities laws and kept secret a major defect in its graphics chip product line was filed in a Californian district court yesterday.

Nvidia’s CEO Jen-Hsun Huang and CFO Marvin Burkett are accused of concealing the defect for eight months, even though – according to the allegations (pdf) – they knew of "these unprecedented failure rates, as well as their ‘root causes’” as early as November 2007.

The chip firm went public about the flaw on 2 July this year when it hit shareholders with a succession of irksome announcements, revealing a financial forecast cut short due to slowing sales, a delayed ramp for new product, and a hefty payout due to faulty laptop chips.

Nvidia said at the time that it expected to pay between $150m and $200m to cover warranty, repair, return, replacement and other costs for defects in certain laptop GPUs (graphic processing units) and MCPs (media and communication processors).

Following the July announcement, Nvidia’s stock price tumbled 31 per cent to $12.98, and market capitalistion shrunk by $3bn “virtually overnight”, according to the filing.

The suit, brought against Nvidia by New York law firm Shalov, Stone, Bonner & Rocco in the US District Court for the Northern District of California, seeks class action status against Nvidia and unspecified damages.

Dell and Hewlett-Packard, among other computer vendors, released hardware BIOS updates to provide a “quick fix” for the chip problem some eight months before Nvidia told investors about the serious defect.

Earlier this month Nvidia’s Q2 revenue dropped five per cent to $892.7m. In addition, the company posted a net loss of $120.9m, which compares to a profit of $172.7m in the same period last year. It also revealed a $196m charge "to cover anticipated customer warranty, repair, return, replacement and associated costs" tied to a defect in certain notebook products.

Nvidia had not responded to our request for comment at time of writing. ®