Former Groq Engineers Sue Board Over $20 Billion Nvidia Licensing Deal

The Lawsuit

Two former Groq engineers, Benjamin Serebrin and Joshua Rubin, have filed a proposed class action in Delaware's Court of Chancery against Groq's former board and former CEO Jonathan Ross. The suit, unsealed Monday, alleges that the board handed over employees and company technology to Nvidia in a $20 billion deal while keeping billions from other shareholders.

The plaintiffs allege the board was conflicted, failed to secure the best terms for every shareholder, and denied some of them a vote on the deal. They say Ross and other top Groq employees were allowed to take a discount on their shares and be paid separately for following the technology to Nvidia. According to the suit, Nvidia hired nearly all of Groq's engineers, as many as 200.

The Deal's Terms

The transaction included a $17 billion license fee for all backers and a separate $3 billion Nvidia stock pool for engineers who transferred. Nvidia's annual report books $14.4 billion of the license as goodwill, primarily attributable to the workforce and future development of the licensed technology, plus $2.5 billion for the technology itself. The 10-K notes that no customer contracts, existing products, or equity interests were purchased, with $13.0 billion paid at closing and $4 billion, inclusive of imputed interest, payable within one year.

The plaintiffs argue that because Nvidia did not buy Groq outright, the $17 billion license payment was taxable as income at Groq, and that the Series A valued the remaining Groq above the price paid to bought-out shareholders. They say four conflicted funds on Groq's board, BlackRock, Social Capital, Infinitum, and Disruptive, engineered that gap and profited by staying with Groq after the buyout.

What Nvidia Acquired

The deal covered Groq's LPU technology and the team that built it, including Ross, a former Google TPU engineer who founded Groq in 2016. The LP30 has 500MB of SRAM per die and 150 TB/s of bandwidth, uses Samsung's 4nm process technology, and is rated by Nvidia at up to 1.23 FP8 PFLOPS. A single LPX rack holds 256 LPUs with 128GB of SRAM, 40 PB/s of bandwidth, and 315 FP8 PFLOPS in aggregate, serving as a decode co-processor for the Vera Rubin NVL72.

During Hot Chips in August, Igor Arsovski, Groq's former chief architect and now Nvidia VP of hardware, called the integration a "pinch me moment for the Groq team that's now integrated into the Nvidia group," and said the rack was already in production at the time.

Broader Scrutiny

Groq told CNBC the suit is "meritless" and said its licensing agreement with Nvidia "delivered exceptional value for Groq, our investors, and our employees." The deal is already under a reported Department of Justice inquiry, and the New York Times reported in September that the department sent Nvidia a formal request for information, with a fine being possible. Nvidia said at the time that the Groq story was "a prime example of the American system working as designed."

Some senators labeled the deal a "reverse acqui-hire" in February, and FTC Chair Andrew Ferguson said in January that the agency is "beginning to examine these acqui-hires to make sure they are not an attempt to get around" its merger review process. The litigation follows Nvidia's agreement to acquire Hugging Face, which included a purchase price and equity for employees who join Nvidia, though that deal is an outright purchase of the company.

Sources: Tom'S Hardware