The US Securities and Exchange Commission (SEC) investigation into NVidia seems likely to focus on the company's accounting for costs sustained while it developed graphics chips for Microsoft's Xbox, reports claim.

The SEC has begun an investigation into how the company recorded reserves during the fourth quarter of its 2000 fiscal year and the first quarter of fiscal year 2001. The SEC is also investigating the possibility that $3.6 million in product costs should have been recorded by the company during the first quarter of fiscal year 2001, but were instead recorded during the second and third quarters of that same year.

Xbox ballast "While the nature of this inquiry is being kept under wraps, we believe the reserves in question relate to the launch of the Xbox," wrote Eric Ross, research principal at Thomas Weisel Partners. "We believe this because of the method of discovery as stated by NVidia: through the separate employee insider trading investigation."

In November, NVidia said that ten employees had been accused of insider trading by the SEC, with four of them facing criminal charges. The charges brought against the employees, both civil and criminal, stemmed from alleged incidents of insider trading of NVidia stock that occurred in March 2000.

In support of the SEC investigation, NVidia handed over emails and other materials dating from between December 1999 and March 2000 to government investigators. The current SEC investigation into NVidia's accounting practices stems from a review of those materials, the company said.