Super Micro Computer Faces Accounting Fraud Allegations, Stock Plummets

New Hindenburg report alleges $35 billion server maker Super Micro Computer of accounting fraud, shares plummet

US-based activist short seller Hindenburg Research LLC has released a new report alleging "accounting manipulation" in server manufacturer Super Micro Computer, and has announced it has taken a short position on the company's stocks on Tuesday, August 29, 2024. This new report led to Super Micro Computer's Nasdaq-listed shares closing 19.02% in the red after the trading session on August 28, 2024. Also Read: Reliance and Disney merger approved by CCI Hindenburg Research is an investment research firm that investigates various companies for aspects like financial irregularities, fraud, etc, and publishes a report after taking a short position on that company's stocks. A short position, also known as short-selling of a company's shares is when an investor enters into a short selling arrangement with a broker wherein the investor borrows shares, sells them for the prevailing market price anticipating a fall in the share price (In this case, as an effect of the negative report), buys the same amount of shares at a lower price after the market price has fallen, and returns it to the person or entity they borrowed it from. Also Read: TRAI invites public comments on regulations against spam calls and texts, telecom fraud Whatever difference in price is there between the previous market price they borrowed the share at and the fallen price at which they bought the share is the short seller's profit. Super Micro Computer is a major provider of high-performance server and storage solutions, founded in 1993 and headquartered in San Jose, California. The report which was created after three months of investigation accuses Super Micro of "accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues." Close ties with Nvidia allowed the company to quickly roll out servers with AI chips, which led to its shares nearly doubling this year in market value, even outperforming Nvidia. However, it was temporarily delisted in 2018 for not filing required financial statements and was charged by the SEC with "widespread accounting violations" of over $200 million in improperly recognized revenue and understated expenses. Less than three months after settling with the SEC for $17.5 million, the company re-hired executives involved in the scandal, according to the report. Related party suppliers such as Ablecom and Compuware, part-owned by CEO Charles Liang and controlled by his brothers, received $983 million from Super Micro over the last three years, providing components to Super Micro and then selling them back, leading to concerns about circular transactions. A new CFO hired in January 2018 helped the company to re-list again, but resigned in January 2021, with a former sales director claiming the CFO was possibly forced out. Also Read: Questioning of Telegram's Durov ends, heads to French investigative judge The company also exported high-tech components to Russia after the war started, despite many companies handling Super Micro products being under US sanctions. Super Micro also has a joint venture with Chinese state-run company Fiberhome, involved in human rights abuses. Additionally, two Taiwanese entities owned by one of Liang's brothers and operating from the Super Micro Science and Technology Park in Taiwan are suppliers not disclosed in filings. There is also one based in Hong Kong similarly reselling Super Micro products and providing OEM services. Super Micro also made an undisclosed investment in tech startup Lambda Labs in February 2024, signing an unusual $600 million lease contract for a California data center, sub-leasing space to Lambda. It also has undisclosed investments and transactions with other companies, including Leadtek and a Turkish shell company, according to the report.

Super Micro Computer stock tanks after short-seller's scathing report, filing delays

Just a day after a short-seller published a scathing report accusing Super Micro Computer (SMCI) of accounting red flags and questionable business dealings, the firm said it would delay filing its next financial reports. Super Micro expects to fail to file its annual report for the fiscal year that ended in June on time, according to a regulatory filing. In a statement, the firm said it needed additional time to fully assess its internal controls over financial reporting. Super Micro added that it has not updated its fourth quarter results, which it posted earlier this month. Super Micro was briefly delisted from the Nasdaq in 2018 for failing to file financial statements. Regulators later charged the company for "widespread accounting violations," including improperly reporting revenue, and fined it $17.5 million. But, less than three months later, Super Micro re-hired top executives that were directly involved in the scandal, according to Hindenburg Research's report, which came after a three month investigation into the AI server and computer infrastructure firm. The short seller said it found "glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures" and other issues. "All told, we believe Super Micro is a serial recidivist," Hindenburg said in its report. "It benefitted as an early mover but still faces significant accounting, governance and compliance issues and offers an inferior product and service now being eroded away by more credible competition." Super Micro said in an email to Quartz on Tuesday that it "does not comment on rumors and speculation." Quartz could not independently verify the report's findings. The San Jose, California-based firm lost its edge among major clients, including Nvidia (NVDA), Tesla (TSLA), CoreWeave and Amazon (AMZN) Web Services, Hindenburg claimed, with several of those companies instead opting for rival Dell's (DELL) servers. Hindenburg disclosed that it was shorting Super Micro stock. Hindenburg also accused Super Micro of maintaining, and expanding upon, its relationship with Russia, skirting U.S. sanctions imposed on several Russian companies following its February 2022 invasion of Ukraine. Since then, exports of Super Micro's high-tech components to Russia have roughly tripled, according to Hindenburg's review of more than 45,000 import and export transactions. The report detailed exports of Super Micro products totaling tens of millions of dollars since the start of the war to several sanctioned Russian entities. Super Micro's partnership with Chinese state-run telecommunication equipment firm Fiberhome was also called into question by Hindenburg. According to the investigation's findings, Super Micro has sold approximately $196 million of "sophisticated computer components" to the joint venture since Fiberhome was watchlisted by the U.S. government in 2020. Super Micro debuted on the S&P 500 in March, thanks to the same AI boom that gave Nvidia (NVDA) its now multi-trillion dollar market capitalization. Shares of Super Micro dipped 2% Tuesday afternoon, before falling by more than 22% Wednesday morning. Super Micro stock is up 48% year-to-date.

Short seller Hindenberg accuses Super Micro Computer of accounting fraud

Hindenberg accused the firm of "significant accounting, governance and compliance issues", as well as offering an "inferior product and service now being eroded away by more credible competition". The company has "ridden the wave of AI enthusiasm" to grow its stock price by almost 700 per cent over the last two years, the firm said. In 2018, was delisted from the Nasdaq after it failed to file financial statements, and was eventually charged in 2020 by the and Exchange for "widespread accounting violations". Less than three months after it was charged and paid the a settlement, Hindenberg alleged that the company had begun to hire back top execs who were directly involved in the accounting scandal. "Almost all of them are back," a former salesperson allegedly told Hindenberg.

Supermicro shares drop on short seller claim of 'accounting red flags' - SiliconANGLE

Supermicro shares drop on short seller claim of 'accounting red flags' Shares of Super Micro Computer Inc., better known as Supermicro, dropped more than 20% today after a short seller claimed to have found issues in its finances. Hindenburg Research on Tuesday alleged that Supermicro's earnings disclosures contain "glaring accounting red flags." In a report, the investment firm claims to have found undisclosed related party transactions, an accounting term that covers deals between parties such as a company and its subsidiaries. Hindenburg Research says that it also identified failures to comply with export controls and other issues. In the wake of the investment firm's claims, Supermicro issued a statement saying that it is delaying the filing of its annual 10-K financial performance report. The company cited a need to review "internal controls over financial reporting." Supermicro did not revise its earnings report for its fiscal fourth quarter and 2024 fiscal year, which was published earlier this month. Supermicro's net sales more than doubled to $5.31 billion in the three months ended June 30. The revenue surge was driven in significant part by strong demand for the company's artificial intelligence hardware, which also helped more than triple its stock price in the first half of the year. Supermicro sells AI-optimized servers that can be equipped with up to eight graphics cards and liquid cooling technology, which dissipates heat more efficiently than fans. The company also makes a range of other data center systems. It provides so-called twin servers that combine two computers in a single chassis with shared cooling equipment and power supplies. Supermicro also makes blade servers, which are compact computers that can be integrated into a data center rack in large numbers, as well as flash storage appliances and other systems. The rest of the company's product portfolio comprises hardware building blocks that customers can use to build their own servers. Supermicro sells chassis frames that include all the auxiliary components necessary to build a server but don't feature any computing hardware. The company supplies more specialized parts as well, including so-called coolant distribution units for circulating cooling liquid inside AI servers. Supermicro is currently trading at around $436 per share, which is less than half the all-time high the stock reached in March. However, the company is still well above the $285 that its shares were worth the start of 2024. The publication of Hindenburg Research's report this week doesn't mark the first time that Supermicro's finances have come under scrutiny. In 2020, the company paid $17.5 million to end a probe by the U.S. Securities and Exchange Commission into its accounting practices. The SEC investigated whether Supermicro had recognized revenue earlier than permitted and understated expenses.

Super Micro shares slammed following delay in annual filing

"It's 'shoot first, ask questions later,'" said Thomas Hayes, chairman and managing member at Great Hill Capital, of the market reaction. "A delayed filing is a red flag - especially in light of the allegations. Time will tell who is correct. But for now, investors seem to be assuming that if there is smoke, there may be fire too." Super Micro said on Wednesday it did not update results for the fiscal year and quarter ended June 30 that it announced earlier this month. The company posted a decline in quarterly margins due to increasing costs of server production and competitive pricing from rivals, including Dell. Super Micro was a big winner in the generative AI boom as businesses bet on the tech needed to power applications such as ChatGPT. The company's value has surged since the beginning of 2023, rising from a valuation of roughly $4.4 billion to a March peak of $67 billion. But the relentless rally in AI stocks has cooled since March, as investors realized the payoff on companies' heavy investments would be slower than expected. Hindenburg did not immediately respond to a request for comment on the delay. The short seller on Tuesday pointed to evidence of undisclosed related-party transactions, failure to abide by export controls, among other issues. Hindenburg said it had conducted a three-month investigation that included interviews with former senior employees and litigation records. A Reuters review of tender documents earlier this year showed Chinese entities acquired high-end Nvidia chips embedded in server products made by several companies including Super Micro through resellers, despite the U.S. government's crackdown on the sale of such technology to China. Super Micro's shares were down $148.65 to $399 on Wednesday, with more than 24 million shares changing hands, far exceeding the average of 7.3 million shares over the past 50 days, according to LSEG data. In a note Tuesday, J.P. Morgan analysts said the Hindenburg report had "limited details" of accounting manipulation but highlighted known areas of governance and transparency improvements. "We see the report as largely void of details around alleged wrongdoings from the company that change the medium-term outlook, and largely revisiting the already known areas for improvement in relation to corporate governance and transparency." Super Micro is the latest target of the short seller that has tussled with billionaire investor Carl Icahn and India's Gautam Adani. Super Micro was charged by the U.S. securities regulator in 2020 of prematurely recognizing revenue and understating expenses. While the company did not admit or deny the SEC's charges, it had agreed to pay a $17.5 million penalty. (Reporting by Deborah Sophia in Bengaluru; Editing by Shilpi Majumdar, Sriraj Kalluvila and Shounak Dasgupta)

Super Micro shares fall 23% on filing delay, Hindenburg Research report

Charles Liang, chief executive officer of Super Micro Computer Inc., during the AMD Advancing AI event in San Jose, California, Dec. 6, 2023. Shares of Super Micro Computer tumbled more than 23% on Wednesday, after the company announced it would not file its annual report for the fiscal year with the U.S. Securities and Exchange Commission on time. "SMCI is unable to file its Annual Report within the prescribed time period without unreasonable effort or expense," the company said in a release. "Additional time is needed for SMCI's management to complete its assessment of the design and operating effectiveness of its internal controls over financial reporting as of June 30, 2024." Super Micro makes computers that companies use as servers for websites, data storage and other applications, including artificial intelligence algorithms. The company's customers include major players in AI, including Nvidia, AMD and Intel. The stock is up more than 47% year to date, but investors were spooked on Tuesday after Hindenburg Research disclosed a short position in the company. Hindenburg said it identified "fresh evidence of accounting manipulation," according to its report. CNBC could not independently verify Hindenburg's claims. It's unclear if the delay in Super Micro's annual report is related to Hindenburg's findings. Analysts at JP Morgan said some of Hindenburg's claims are "tough to verify," and they think the report is "largely void of details around alleged wrong doings from the company." Even so, the analysts said Super Micro still has room for improvement when it comes to communicating with investors and establishing clear governance and transparency, especially since it has grown so rapidly due to demand for its AI servers. "As we dig into the details of the report, we believe there to be limited evidence of accounting mistreatments beyond revisiting the 2020 charges from the SEC, and limited new information relative to the existing and already known business relationship with related companies owned by the siblings of the founder of SMCI," the analysts wrote in a Tuesday note.

Super Micro, an AI darling, postponed earnings while under a short seller's microscope

Super Micro management told shareholders it needs time to complete an assessment of the internal controls of its financial reporting. A representative confirmed to Fortune that Super Micro will not file its annual report for fiscal year 2024 within "the prescribed time period," but didn't offer any indication as to when the report will be filed. "Additional time is needed to assess some internal controls," the representative said, echoing the company's public statements. The filing delay comes after Super Micro was hit with accusations of accounting manipulation and sanctions evasion by the activist short seller Hindenburg Research on Tuesday. In a 19,000 word short report, Hindenburg Research said it found "glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures," and more. The short seller and research company conducted a three-month investigation into Supermicro that included interviews with insiders, industry experts, and a review of accounting and litigation records. The controversial firm is named after the famed airship disaster, and targets companies it believes are headed for a dramatic fall. Hindenburg's posts often trigger major stock price drops, or legal and regulatory investigations. "The Company does not comment on rumors and speculation," a representative for Super Micro told Fortune when asked about the short report. Super Micro provides servers, networking equipment, storage systems, and other critical components and solutions for data centers. With the AI boom in full-swing in recent years, demand for its products has exploded. The company, which was founded by Charles Liang in 1993, was added to the Fortune 500 for the first time this year after its annual fiscal revenue hit a record $7.12 billion. Investors were quick to notice Super Micro's AI opportunity over the past few years. Its stock soared 6368% from around $19 per share in August 2019 to its intraday peak of $1,229 on March 8 of this year. Just 10 days later, the company was added to the S&P 500 Index in "recognition of remarkable growth in sales and market capitalization." More recently, however, Super Micro has struggled. Though the company's revenue has continued to grow impressively, margins have been under pressure due to rising server production costs and competition from Dell, Hewlett Packard Enterprises, IBM, and others. Gross profit margins fell to 11.3% in the company's fiscal fourth quarter that ended in June, down from 17% a year ago. Now, after Hindenburg's short report, Super Micro shares are down more than 65% from their March peak. Hindenburg's short report includes a number of serious allegations of impropriety, while also detailing why Hindenburg founder Nathan Anderson and his team are bearish on Super Micro stock. Fortune could not independently verify all of the claims in Hindenburg's report. One of the more serious allegations involves a claim that Super Micro continues to engage in accounting violations for which it was previously fined by the Securities and Exchange Commission (SEC). In August 2020, Super Micro and its former CFO, Howard Hideshima, were charged by the SEC for "widespread accounting violations," particularly improperly recognizing revenue and understating expenses over a three year period. Melissa Hodgman, an associate director in the SEC's Division of Enforcement, said in a statement after the charges were filed that misreporting revenue in this way can give "investors a distorted view of a company's financial condition." Hindenburg went a step further on Tuesday, arguing it resulted "in artificially elevated sales, earnings and profit margins." Even worse, the short-seller alleged that just three months after Super Micro paid $17.5 million to settle its charges with the SEC, the company began rehiring former executives who were involved in the scandal. "A former salesperson told us: 'Almost all of them are back. Almost all of the people that were let go that were the cause of this malfeasance,'" Hindenburg's report reads. Super Micro was also shipping high-tech products to Russia in violation of U.S. export bans, including components that could potentially be used for military purposes, according to Hindenburg. "Exports of Super Micro's high-tech components to Russia have spiked ~3x since the invasion of Ukraine, apparently violating U.S. export bans, according to our review of more than 45,000 import/export transactions," the short seller's report reads. The final major accusation involves questionable financial relationships at Super Micro. Hindenburg noted that $983 million has been paid to Super Micro's suppliers, Ablecom and Compuware, over the past three years. The issue, according to Hindenburg, is that these companies are controlled and partly owned by Super Micro CEO Charles Liang's brothers, Steve Liang and Bill Liang. As of the end of 2023, Steve Liang was Abelcom's largest shareholder and CEO, according to SEC filings. And Bill Liang was CEO of Compuware, a member of Compuware's board of directors, and a holder of "a significant equity interest in Compuware." Hindenburg noted that 99.8% of Abelcom's exports to the U.S. and 99.7% of Compuware's U.S. exports went to Super Micro, according to trade records. "The relationships seem oddly circular," Hindenburg's report reads. Founded by Anderson in 2017, Hindenburg Research is a short seller known for its big, and typically very public, bets against some of the finance world's biggest fish. In April 2023, it targeted the billionaire Carl Icahn, who made his name as a "corporate raider" in the 1980s, alleging that his namesake company, Icahn Enterprises, had artificially inflated asset values and offered an unsustainable dividend to lure retail investors into a "ponzi-like" structure. Icahn Enterprises eventually cut its dividend in half, and its shares have plummeted nearly 75% since the release of Hindenburg's short report. Icahn also settled charges with the SEC this year, agreeing to pay $2 million in penalties for failing to disclose that he pledged the majority of his Icahn Enterprises stock for billions in personal margin loans. Hindenburg had a major run-in with the Indian billionaire Gautam Adani in 2023 as well, then Asia's richest man, alleging that he was engaged in "a brazen stock manipulation and accounting fraud scheme over the course of decades." The short seller is also known for targeting the electric vehicle maker Nikola in 2020 with accusations that the company made exaggerated claims about its vehicles, engaged in fraudulent marketing, and misrepresented its financial status. Nikola's market cap has dropped from $34 billion at its 2020 peak to just over $330 million today. Now, Super Micro, the market's AI favorite, is under Hindenburg's intimidating microscope -- and, like always, lawyers are circling, asking investors with major losses to come forward for their investigation into "potential securities claims."