More than $4 billion in Nvidia (NASDAQ: NVDA) chips may have flowed toward China through a single intermediary company, and the fallout is now fracturing the upper ranks of the Trump administration.
Treasury Secretary Scott Bessent went public Friday with a pointed accusation against the Commerce Department, telling CNBC’s “Squawk Box” that his agency, along with the Pentagon and the State Department, had sought for months to restrict the chip distributor Megaspeed.
Despite pressure from three federal departments, Commerce never added Megaspeed to its export control list, with Bessent noting plainly that “Commerce has the pen.”
“You will have to ask them about their internal processes,” Bessent said, in a rebuke that drew immediate attention as a rare instance of one sitting cabinet secretary publicly criticizing another.
Commerce is led by Secretary Howard Lutnick, whose department has come under intensifying scrutiny over its handling of Nvidia chip sales and its reported delays in acting against Megaspeed despite sustained interagency pressure dating back to fall 2025.
Megaspeed is accused of purchasing Nvidia chips for data centers in Southeast Asia and then routing those chips into China, effectively helping Chinese firms circumvent U.S. export controls that President Trump has publicly insisted must hold.
Bessent made clear he views the issue in terms of the broader strategic competition with Beijing, saying, “I am frustrated when President Trump made it very clear that China should not receive any Nvidia chips above H100S, and so any leakage is very frustrating because it hurts our great companies, and the AI race gives the Chinese an advantage.”
The scandal widened further after former Nvidia CEO Jensen Huang seemingly admitted to an affair with Alice Huang, a onetime Megaspeed executive whom U.S. officials concluded was a Chinese spy, thrusting the chip distributor into the national security spotlight.
The New York Times subsequently reported that Huang had a second affair with a direct subordinate, and the former CEO stepped down from his position Thursday morning.
Lutnick’s reported closeness to Huang has compounded the political pressure on Commerce, with the Times also reporting that the secretary resisted placing tighter limits on Nvidia’s advanced chip exports to China.
A figure named Kessler reportedly shut down an internal investigation into Megaspeed after Nvidia intervened, a detail that prompted Bessent to raise broader questions about the company’s own due diligence.
“The real story here should be: Did Nvidia know their client, and was there a robust effort at Nvidia to make sure that there was no leakage,” Bessent said, suggesting that the chip giant may have sold to what he described as “obviously pass-through shell companies.”
Reports also indicate that Bessent confronted Lutnick directly in the White House Situation Room over the failure to blacklist Megaspeed, though Commerce has denied that exchange took place.
On Capitol Hill, the episode has galvanized members of both chambers, with multiple Republican senators calling for Lutnick and Huang to appear before the Senate, and a Republican House member telling Semafor that “questions need to be answered.”
Lutnick has reportedly agreed to testify before the Senate Banking Committee, a concession that signals the political costs of the controversy are beginning to mount for the Commerce Department.
