Super Micro’s Auditors Quit Amid Governance Concerns, Stock Plummets
In a development sending shockwaves through the tech sector, Super Micro Computer Inc. (NASDAQ: SMCI) is facing a crisis of trust and governance following the resignation of Ernst & Young (EY) as its auditor. EY’s decision to sever ties with Super Micro, detailed in a resignation letter to the U.S. Securities and Exchange Commission (SEC), highlights serious concerns about the company’s commitment to “integrity” and “ethical values.”
The resignation has resulted in a steep sell-off, with Super Micro’s stock plummeting over 35% since the announcement, shedding billions in market value.
EY’s resignation letter, filed with the SEC on October 29, 2024, contained unusually blunt language for an auditor, suggesting deep-seated issues within Super Micro’s management and board oversight.
“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,” EY stated, adding that they are “unwilling to be associated with the financial statements prepared by management.”
The audit firm concluded that it could “no longer provide the Audit Services in accordance with applicable law or professional obligations,” a damning indictment rarely seen in corporate audits.
In a striking assertion, EY’s letter emphasized concerns about Super Micro’s adherence to the COSO (Committee of Sponsoring Organizations) Framework, a widely accepted framework for evaluating corporate governance and internal controls. EY’s statement directly questioned whether Super Micro’s leadership displayed “a commitment to integrity and ethical values consistent with Principle 1 of the COSO Framework,” and raised doubts about the independence and oversight role of the company’s board and audit committee in accordance with Principle 2.
Following EY’s resignation, Super Micro’s stock has spiraled downward, falling from $49.12 to as low as $33.51—a staggering decline of over 35%. The announcement of EY’s departure amid such severe accusations has left investors and analysts grappling with the implications for Super Micro’s financial stability and integrity.
EY’s resignation comes just months after a searing investigative report by Hindenburg Research, a well-known short-seller, accused Super Micro of financial misconduct and export violations. Released in August 2024, Hindenburg’s 19,000-word exposé alleged that Super Micro inflated revenues through questionable accounting practices and circumvented U.S. export bans by shipping high-tech components to Russia.
“Exports of Super Micro’s high-tech components to Russia have spiked ~3x since the invasion of Ukraine, apparently violating U.S. export bans,” the report claimed. Such practices, if confirmed, could lead to severe legal repercussions for the company.
The Hindenburg report also accused Super Micro of maintaining murky business relationships, pointing to almost $1 billion in payments to two suppliers—Ablecom and Compuware—both controlled by family members of Super Micro’s CEO, Charles Liang. According to Hindenburg, 99.8% of Ablecom’s exports and 99.7% of Compuware’s exports went directly to Super Micro, creating a “circular flow of business” that raises serious governance and conflict-of-interest concerns.
Hindenburg noted, “These arrangements give the appearance of a family-controlled ecosystem where business interests are intertwined, which could be detrimental to shareholders.”
EY’s resignation letter to the SEC confirmed that the audit firm had raised concerns about governance and transparency as early as July 2024, urging the board to conduct an independent review. In response, Super Micro’s board formed a Special Committee and hired Cooley LLP along with forensic accounting firm Secretariat Advisors to investigate EY’s claims.
However, despite the ongoing review, EY stated that “additional information raised questions about the Company’s commitment to integrity” and cast doubt on the willingness of the board and audit committee to exercise independent oversight.
For its part, Super Micro has publicly disputed EY’s assertions, claiming that the Special Committee’s investigation is still in progress and has not reached any conclusions.
“The Company disagrees with EY’s decision to resign,” Super Micro stated in its SEC filing, adding that it “takes the concerns expressed by EY seriously” and will “carefully consider the findings” once the review concludes.
In recent years, similar resignations from EY and other top audit firms have preceded major corporate crises. Earlier in 2024, EY resigned from its role as auditor for SunPower Corporation, citing concerns over accounting irregularities. SunPower later filed for bankruptcy after it was forced to restate its financials.
“When an auditor quits with public criticism of the company or due to disagreements with management, it often signals severe underlying accounting issues,” wrote Substack comlumnist Olga Usvyatsky, an investigative journalist specializing in corporate governance.
The company now faces the challenging task of finding a replacement auditor willing to take on a client marred by public accusations of governance and transparency failures. If a new auditor is not secured promptly, Super Micro risks further delays in its financial filings, which could lead to delisting from NASDAQ and additional penalties from the SEC.
Moreover, the findings from the Special Committee’s investigation, once finalized, could uncover further issues that might necessitate a restatement of financials, or even criminal liability if the export violations are substantiated. Investors and regulators alike will be scrutinizing the results closely to determine whether Super Micro’s recent growth, driven by soaring demand for AI hardware, has been built on unsound practices.
For a company that saw its stock rise by over 6,000% between 2019 and 2024, this crisis underscores how poor governance can destabilize even the most promising enterprises.
Information for this briefing was found via the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
