Super Micro Computer Under DOJ Probe for Accounting Practices and Export Violations

DOJ reportedly probes Supermicro for accounting manipulations -- alleged export violations to China and Russia also raise attention

The U.S. Department of Justice (DoJ) is reportedly investigating Supermicro after Hindenburg Research accused the company of manipulating its financial reports and violations of U.S. export regulations to Russia and China, reports the Wall Street Journal. Supermicro has denied any wrongdoing, but the investigation is in its early stages, and stock prices have dropped in response. The DoJ and Supermicro have not formally confirmed the ongoing probe. Hindenburg Research published a report titled Supermicro: Fresh Evidence Of Accounting Manipulation, Sibling Self-Dealing And Sanctions Evasion At This AI High Flyer back in August. The report accused Supermicro of improper accounting practices, related-party transactions, and failure to comply with U.S. export regulations. Supermicro is accused of selling high-tech products to China and Russia. This is after Russia invaded Ukraine in early 2022 and follows strict U.S.-imposed export controls on high-performance processors bound for China. The Hindenburg investigation appears comprehensive -- the short seller investor says it lasted three months and included interviews with former Supermicro employees. Following Hindenburg's report, Supermicro postponed filing its annual report, stating that it needed to review its internal financial controls, which raised suspicions. Now, the Department of Justice has started its own inquiry into the company, focusing on allegations of financial misconduct. According to the report, a prosecutor contacted individuals with potential knowledge of these practices, including information about a former employee who accused Supermicro of violating accounting rules. Following the Russian invasion of Ukraine in 2022, the U.S. implemented strict export restrictions on high-performance computers and related technology to Russia. As a result, approximately 46 companies involved in handling these products are now under U.S. sanctions, with two-thirds of these exports consisting of components deemed critical by the U.S. government, potentially intended for military use. Despite Supermicro's claims of halting sales and recording no revenue from Russia since the war began, the company's exports to Russia have surged threefold, according to Hindenburg's findings. One significant recipient of Supermicro products is Niagara Computers, a supplier linked to a major Russian supercomputer used at a previously secret and now-sanctioned Kurchatov Institute nuclear technology research center. Niagara Computers received $46.3 million in products since the start of the war. Allegedly, these sales were initially facilitated through a California-based distributor but were later funneled through three new Turkish shell companies, one of which was sanctioned for smuggling. Additionally, around $30 million in components were allegedly shipped through a Hong Kong-based shell entity to VneshEcoStyle, one of Russia's largest importers of dual-use technology, which is also now under sanctions. This company makes no secret that its business is to 'find the equipment abroad and to deliver it in Russia,' which essentially means evading sanctions. As the U.S. government has been cracking down on technology sales to China and Supermicro has come under scrutiny, the company's business practices to supply technology to Tianxia purportedly become more sophisticated. Hindenburg Research's report alleges that Supermicro exported AI, HPC, and surveillance servers equipped with Nvidia processors to China, even to entities with ties to the Chinese military through resellers. The report suggests that Supermicro employed intermediaries (for example, using Taiwan-based Leadtek, which derives about 70% - 80% of its revenue from China) and shell companies to obscure the final destinations of its products, thus evading U.S. export control regulations. It alleges that this practice enabled Supermicro to bypass restrictions and continue business in China despite tightening export laws. The report suggests that these actions demonstrate systemic governance failures within Supermicro and a willingness to circumvent trade restrictions to boost revenue and profits. This, of course, raises geopolitical concerns about the role of U.S. companies in advancing the technological capacity of strategic rivals. Hindenburg suggests that Supermicro potentially risked violating U.S. laws designed to prevent sensitive technologies from aiding foreign militaries. However, the report provides no direct evidence of Supermicro selling restricted components (Nvidia's A100 or H100 processors) to China. Supermicro has benefited greatly from the rise of artificial intelligence, with its market value soaring from $4.4 billion in recent years to $67 billion by March 2024. The company is a major supplier of AI servers, which has driven much of its recent success. Despite Supermicro's growth, the report has cast doubt on its business practices. Apparently, just selling AI servers to interested parties was not enough. Based on Hindenburg's research, the company sold its servers to entities possibly linked to China and Russia's military amid the war against Ukraine, in which China aids Russia with technology. Supermicro's stock dropped by 12% after news of the DOJ investigation became public due to the WSJ report. The AI stock boom, which had significantly boosted the company's valuation, has cooled recently as investors adjust their expectations regarding returns on AI investments. However, when it comes to Supermicro, the company's financial results were allegedly boosted by illegal business practices and supplying U.S. adversaries.

Super Micro Computer probed by DoJ - WSJ By Investing.com

Investing.com -- Super Micro Computer (NASDAQ:SMCI), a key player in the artificial intelligence server industry, is being probed by the U.S. Department of Justice (DoJ), according to a report by the Wall Street Journal (WSJ). The investigation follows a report by activist short-selling firm Hindenburg Research, which raised concerns about accounting practices within the company, the WSJ said, citing people familiar with the matter. The probe is said to be in its early stages, with a prosecutor from the U.S. attorney's office in San Francisco reportedly seeking information related to the case, the WSJ said. The inquiry appears connected to a whistleblower lawsuit filed in April by Bob Luong, a former employee, who accused Super Micro of accounting violations. According to the WSJ, Luong's lawsuit alleges that the company improperly recognized revenue from 2020 to 2022, including booking sales that had not been completed and shipping incomplete equipment to customers. Super Micro, known for making servers using Nvidia (NASDAQ:NVDA) chips for generative AI, saw its stock surge during the AI boom, but it has since plummeted after peaking at $66 billion in value earlier this year, the WSJ reported. Following the WSJ report, SMCI shares are down around 12% on Thursday. In its August report, Hindenburg also highlighted transactions between Super Micro and companies owned by CEO Charles Liang's family, as well as allegations of shipments to Russian companies in violation of U.S. sanctions. The day after the report, Super Micro announced it would delay filing its annual report and had formed a board committee to review internal controls. In a letter to customers on September 3, Liang defended the company, calling the allegations in the short-seller report "false or inaccurate," according to the WSJ. Meanwhile, Super Micro has requested that Luong's lawsuit be moved to arbitration, with a court hearing scheduled soon.

Supermicro shares drop on reported Justice Department probe - SiliconANGLE

Supermicro shares drop on reported Justice Department probe Shares of Super Micro Computer Inc. dropped more than 12% today after the Wall Street Journal reported that the company is facing a probe from the U.S. Justice Department. The report didn't specify the nature of the investigation. However, the Journal's sources did detail that a prosecutor has asked for information seemingly "connected to a former employee who accused the company of accounting violations." A few months after the employee made those accusations, a short seller flagged similar concerns about Supermicro's finances. Supermicro is a major supplier of the specialized servers in which cloud operators place their graphics cards. Each of the company's machines can be equipped with up to 10 Nvidia Corp. chips. The servers include up to several terabytes of memory, flash drives that can be replaced without incurring downtime and other components. Alongside artificial intelligence hardware, Supermicro sells servers for a range of other use cases. Some systems are geared towards general-purpose workloads. The company also makes more specialized machines, such as so-called twin servers that combine two computers in a single chassis. Supermicro is likewise a major player in the upstream server component market. The company has been selling motherboards, the parts that link together a computer's core components, for more than three decades. Supermicro makes over 500 kinds of motherboards for not only servers but also connected devices and workstations. Last month, Hindenburg Research claimed to have found "glaring accounting red flags" in Supermicro's finances. The short seller said that it had discovered undisclosed related party transactions, which are deals between closely associated parties such as a company and its subsidiaries. Hindenburg also claims to have identified other issues including failures to comply with export controls. A few months earlier, a one-time general manager at Supermicro's professional services group filed a lawsuit against the company. The former executive accused the hardware maker of improperly recognizing revenue between 2020 and 2022. According to the lawsuit, Supermicro booked revenue on transactions that hadn't been completed or involved the sale of partly-constructed hardware. The former executive's lawsuit is reportedly not the only focus of the Justice Department probe into Supermicro. According to the Journal, a prosecutor at the U.S. attorney's office in San Francisco has contacted several individuals "potentially holding relevant information" about the company. The report didn't elaborate. Shortly after Hindenburg Research published its claims of accounting irregularities last month, Supermicro announced plans to delay the filing of its annual 10-K financial performance report. The hardware maker's board also formed a committee to "review certain of the company's internal controls and other matters." Supermicro has not revised the numbers in its most recent quarterly earnings report, which was published three weeks before the Hindenburg Research claims. In a Sept. 3 letter to customers cited by the Journal today, the company stated that the short seller made "false or inaccurate statements about our company." Supermicro's memo added that "we will address these statements in due course."

Super Micro Computer stock plunges on report of federal probe

Super Micro Computer's stock price fell sharply on Thursday after the Wall Street Journal reported that the Department of Justice is investigating the server maker. Shares of the company, which sports a market capitalization of nearly $24 billion and which has been boosted by investor interest in artificial intelligence, sank $54, or roughly 12%, in afternoon trade. The Journal cited people familiar with the matter in reporting that the Justice Department has opened a probe into Super Micro, with the investigation in its initial phases. The agency's investigation followed a critical report in August about Super Micro by Hindenburg Research, an investment firm that specializes in short-selling, or betting that a company's stock price will fall. Hindenburg's report alleged "glaring accounting flags, evidence of undisclosed related party transactions" and other issues at Super Micro, a Silicon Valley maker of computer servers and storage technology. According to the Journal, a prosecutor at the U.S. attorney's office in San Francisco is seeking information possibly tied to a former employee who accused the company of accounting violations and who had filed a whistleblower lawsuit against Super Micro in April. The Hindenburg report focused in part on the ex-employer's allegations. On August 28, a day after the Hindenburg report, Super Micro said it would file its fiscal 2024 annual report with the Securities and Exchange Commission late. Super Micro declined to comment. In a September 3 letter filed with the SEC, Super Micro founder and CEO Charles Liang disputed Hindenburg's claims. "You may have also heard about a recent report from a short-seller hedge fund that contains false or inaccurate statements about our company including misleading presentations of information," he said. "We will address these statements in due course." Hindenburg and the Department of Justice did not immediately respond to requests for comment.

Super Micro shares tumble 12% after DOJ reportedly opens probe into company

Super Micro Computer shares fell more than 12% on Thursday after the Justice Department reportedly opened a probe into the company, which has been a major beneficiary of the artificial intelligence boom. The probe is in its early days, according to a report from The Wall Street Journal, and it comes after Hindenburg Research disclosed a short position in the company in late August. Hindenburg said it identified "fresh evidence of accounting manipulation," according to its report. CNBC could not independently verify Hindenburg's claims. Super Micro makes computers that companies use as servers for websites, data storage and other applications, including AI algorithms. The company's customers include major players in AI like Nvidia, AMD and Intel. A prosecutor in the U.S. attorney's office in San Francisco has asked for information about a former employee that has previously accused Super Micro of accounting violations, according to the Journal. Following Hindenburg's report in August, Super Micro said it would not file its annual report for the fiscal year with the U.S. Securities and Exchange Commission on time, sending shares tumbling nearly 20%. It is not clear if the delay was related to the firm's report. Hindenburg, Super Micro and the Department of Justice did not immediately respond to CNBC's requests for comment.

Super Micro Computer update: Wild week for SMCI as stock split date approaches amid reported DOJ probe

Super Micro Computer, better known as Supermicro, is going through one of the most contentious periods in its 30-plus year history this week thanks to two major events. The first is news that the Department of Justice (DOJ) is reportedly investigating the AI server company's accounting practices. The second is an upcoming stock split. And speaking of that stock, shares of Supermicro (Nasdaq:SMCI) plunged over 12% yesterday after news of the alleged DOJ investigation broke. Here's what you need to know. DOJ investigation The most troubling news for Supermicro this week came after the Wall Street Journal reported that the company was under investigation by the Department of Justice over alleged accounting irregularities. Neither the DOJ nor Supermicro have confirmed the investigation, which the WSJ says is in its early days.

US Justice Department probes Super Micro Computer, WSJ reports

Sept 26 (Reuters) - The U.S. Department of Justice is investigating Super Micro Computer (SMCI.O), opens new tab, the Wall Street Journal reported on Thursday, citing people familiar with the matter, sending the AI server maker's shares down about 5%. Super Micro Computer had earlier this month denied claims made in a report by short-seller Hindenburg Research, saying it contained "false or inaccurate statements" about the server maker. Advertisement · Scroll to continue Hindenburg in August disclosed a short position in Super Micro and alleged "accounting manipulation" at the company, citing evidence of undisclosed related-party transactions and failure to abide by export controls, among other issues. Super Micro did not immediately respond to a Reuters request for comment. Reporting by Akash Sriram in Bengaluru; Editing by Shreya Biswas Our Standards: The Thomson Reuters Trust Principles., opens new tab

Super Micro Computer Stock Plunges on Report of Federal Accounting Probe

A former employee filed a whistleblower lawsuit against Supermicro earlier this year, pointing to accounting irregularities. Shares of Super Micro Computer (SMCI), or Supermicro, dropped 15% to lead S&P 500 decliners Thursday on a report that the U.S. Department of Justice (DOJ) is investigating the server maker over possible accounting and other violations. The Wall Street Journal reported that the probe came after well-known short seller Hindenberg Research claimed last month that it saw "fresh evidence of accounting manipulation, sibling self-dealing and sanctions evasion" at Supermicro. Hindenberg said in the report that it uncovered "glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues." The paper said that the investigation is in its early stages, and that a prosecutor in the U.S. attorney's office in San Francisco has contacted people who might have relevant information. It added that officials appear to be looking into accusations from a former employee who filed a whistleblower lawsuit against the company and Chief Executive Officer (CEO) Charles Liang in April, charging Supermicro with improper accounting. Last month, Supermicro announced that it would delay the release of its annual report, saying that management needed additional time "to complete its assessment of the design and operating effectiveness of its internal controls over financial reporting as of June 30, 2024." Supermicro didn't respond to an Investopedia request for comment. Super Micro Computer shares hit an all-time high in March, quadrupling in value for the year at that point as the company benefited from the artificial intelligence (AI) boom. However, the stock has lost ground since, although it remains up about 38% in 2024. Recently, shares were off 15% at $387.21 each.

Super Micro Computer probed by feds after short-seller alleges...

The Justice Department is investigating Super Micro Computer, the Wall Street Journal reported Thursday, citing people familiar with the matter, sending the AI server maker's shares down about 5%. Super Micro Computer had earlier this month denied claims made in a report by short-seller Hindenburg Research, saying it contained "false or inaccurate statements" about the server maker. Hindenburg in August disclosed a short position in Super Micro and alleged "accounting manipulation" at the company, citing evidence of undisclosed related-party transactions and failure to abide by export controls, among other issues. Super Micro did not immediately respond to a Reuters request for comment.

NVIDIA's Third-Largest Customer - Super Micro Computer (SMCI) - Reportedly Under A DOJ Probe As Its Annual Report Filing Delays Place Investors On Edge

This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy. In what is now being interpreted as a testament to the gravity of the allegations leveled by the meticulous short-seller firm Hindenburg Research, the US Department of Justice has reportedly opened an active investigation into the troubled affairs of the retailer of high-performance servers and liquid-cooled AI racks, Super Micro Computer (SMCI). To wit, the Wall Street Journal is now reporting that a prosecutor affiliated with the US attorney's office in San Francisco has, in recent days, contacted relevant persons with first-hand knowledge of the events as alleged by Hindenburg Research in its comprehensive short attack against Super Micro Computer back in August. While the probe appears to be at a nascent stage, these preliminary contacts do suggest that the DOJ is taking Hindenburg's allegations seriously. For the benefit of those who might not be aware, Hindenburg Research had leveled a few primary allegations against Super Micro Computer in its report: In the aftermath of this hard-hitting report, Super Micro Computer had announced a delay in the filing of the requisite annual report on the Form 10-K, as stipulated by the SEC, to undertake a comprehensive internal review. As we noted in a dedicated post recently, Super Micro Computer's fiscal year ended on the 30th of June, 2024, and, as such, it was required to file an annual report by the 30th of August. The company now faces the specter of a probable fine by the SEC for continuing to delay the filing of its annual report. What's more, the firm was recently informed by the Nasdaq Exchange that it was "not in compliance with NASDAQ Listing Rule 5250(c)(1), as a result of the Company's delay in filing its Annual Report on Form 10-K for fiscal year 2024." Do note that Super Micro Computer has continued to assert throughout the past few weeks that it does not expect its ongoing internal review to result in "any material changes" in its fourth quarter or fiscal year 2024 financial results. Bear in mind that Super Micro Computer is NVIDIA's third-largest customer. What's more, SMCI's biggest client is NVIDIA, and its second-biggest client is an entity that is backed by NVIDIA.