Super Micro Computer’s (SMCI) stock dropped nearly 30% on Wednesday, Oct. 30, after the AI server maker’s auditor resigned.
Ernst & Young (EY) resigned while auditing Super Micro’s fiscal year ending June 30, 2024, according to Yahoo Finance. The move comes after Hindenburg Research released a brief report in August alleging “accounting manipulation” at Super Micro.
“We are resigning due to information that has recently come to our attention, which has led us to no longer be able to rely on management’s and the Audit Committee’s representations and to be unwilling to be associated with the financial statements prepared by management,” EY stated in its resignation letter. The accounting firm added that it can no longer provide audit services in compliance with “applicable laws or professional obligations.”
In August, Hindenburg stated that its three-month investigation uncovered “glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues.” The firm also disclosed taking a short position on Super Micro.
Following Hindenburg’s report, Super Micro delayed filing its annual report, prompting its stock to drop nearly 20% on Aug. 28, Yahoo Finance reported. The company has announced plans to provide a first-quarter business update on Tuesday, Nov. 5, coinciding with Election Day.
In its 8-K SEC filing on Oct. 30, Super Micro said it “disagrees” with EY’s decision and is working to find new auditors.
“The Company does not expect that a resolution of the matters raised by E&Y or those under consideration by the previously announced Special Committee of the Board will result in any restatements of its quarterly financial results for the fiscal year ended June 30, 2024, or for prior fiscal years,” Super Micro said, per Yahoo Finance.
In September, the Wall Street Journal reported that the U.S. Department of Justice was in the early stages of investigating Super Micro. According to Yahoo, the publication mentioned that a prosecutor at the U.S. Attorney’s Office in San Francisco, CA, requested information about a former employee accused of accounting violations.
On Oct. 24, law firm Hagens Berman also announced a class action lawsuit against the tech company on behalf of investors alleging an extensive class period.
According to the lawsuit, filed in the Northern District of California, Super Micro and some of its officers misled investors between Feb. 2, 2021, to Sept. 25, 2024. Like the DOJ investigation, the suit follows Hindenburg’s published report.
Reed Kathrein, Hagens Berman’s partner leading the investigation, said the claims brought up in the litigation “raise significant concerns about Super Micro’s financial reporting and internal controls.”
