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Nvidia admitted earlier this summer that it had a problem with faulty GPUs that had affected laptop manufacturers including Dell and HP.

The lawsuit alleges that the company knew of the problem last year, but didn't disclose the issue to shareholders "in a series of false and misleading statements made to the investing public."

"The truth is that, at least as early as November 2007, Nvidia and the other defendants have known about these unprecedented failure rates as well as their 'root causes'," the lawsuit claims.

"Nevertheless, for at least eight months, defendants concealed from Nvidia investors these defects and their obvious impact on

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the company's financial condition and future business prospects," it adds.

Speaking at its NVISION conference last month, an Nvidia spokesman said it had been prevented from coming clean over the scale of the problem by PC manufacturers. "The truth is," he explained, "our obligations to our partners limits what we can say. We need to leave announcements to our partners like Dell and HP.

"I know there's frustration, and it would make my job easier if I could give out the facts that I know, but we have obligations to our partners. We discuss it constantly, and the company would like to be more upfront about this - but we can't be."

Financial meltdown

The lawsuit cites Intel's 1994 problems with its processors as an indication of the kind of "financial shockwaves" that can be created by faulty chips. "Intel was flooded with an avalanche of complaints and was forced to take a $475 million write down to compensate for repairs and returns," the suit states. "This kind of disaster scenario materialised for Nvidia earlier this year."

Nvidia admitted in July that the cost of repairs and returns for the faulty GPUs would cost up to $200 million.

The company declined to comment on the lawsuit.