Justice Department Launches Inquiry into Server Manufacturer Super Micro Computer

Super Micro Computer (SMCI) has recently faced significant challenges following a critical report from activist short-selling firm Hindenburg Research. This report has triggered a probe by the U.S. Department of Justice, marking a troubling turn for the company, which had previously experienced rapid growth due to the surge in demand for artificial intelligence technologies.

The investigation is reportedly in its preliminary stages, with a prosecutor from the U.S. attorney’s office in San Francisco reaching out to individuals who might possess pertinent information regarding the allegations against Super Micro. Central to the inquiry are claims made by a former employee, Bob Luong, who has accused the company of accounting violations and subsequently filed a whistleblower lawsuit in April against Super Micro and its CEO, Charles Liang.

In its report published on August 27, Hindenburg Research highlighted allegations of misconduct within Super Micro, including questionable transactions between the company and entities associated with Liang’s family. Following this report, the company's shares have significantly declined, falling 12.17%, symbolized by a downward red triangle on market charts.

Super Micro had initially experienced a remarkable rise in its stock price, soaring fourteen-fold from early 2023 until March, buoyed by a booming market for AI-related stocks. At its peak, the company's market capitalization reached an impressive $66 billion. However, since then, the stock has plummeted by 59%, reflecting growing investor concern over the allegations and ongoing investigations.

This is not the first time Super Micro has faced scrutiny over its financial practices. In 2020, the company settled with the Securities and Exchange Commission (SEC) for $17.5 million concerning widespread accounting violations, though it did so without admitting to any wrongdoing. The SEC also reached a separate settlement with a former chief financial officer of Super Micro, which included requiring Liang to return $2.1 million in stock-sale profits, although Liang was not directly accused of misconduct.

Luong's lawsuit alleges that Super Micro engaged in retaliatory practices, terminating several employees linked to past accounting violations only to rehire them later. This claim was echoed by Hindenburg in its report, raising further concerns about the company’s internal practices. Additionally, Hindenburg alleged that Super Micro had shipped products to Russian companies after the onset of the war in Ukraine, potentially in violation of U.S. sanctions.

On August 28, following the publication of the Hindenburg report, Super Micro announced that it would delay filing its fiscal 2024 annual report with the SEC. In light of these developments, the company's board of directors established a committee tasked with reviewing certain internal controls and related issues. However, as of now, Super Micro has yet to submit its annual report, leaving investors and stakeholders in a state of uncertainty regarding the company's financial health and compliance practices.

As Super Micro navigates these allegations and the ongoing investigation, the company's future and the potential ramifications for its business operations will be closely watched by investors, regulators, and industry analysts alike. The juxtaposition of its past rapid growth against the current scrutiny highlights the precarious nature of market sentiment, particularly in sectors heavily tied to emerging technologies like artificial intelligence.