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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:
- SMCI sales team allegedly engages in distribution channel stuffing by pushing products to distributors based on artificially inflated demand forecasts.
- To meet specific sales targets and inflate the total shipment count, Super Micro Computer regularly undertakes partial shipments.
- After the SEC charged Super Micro Computer for "widespread accounting violations" in 2020, resulting in a $17.5 million settlement, the company re-hired top executives responsible for those violations within a three-month period. This then resulted in another lawsuit that was filed in April 2024, asserting that SMCI restarted its improper revenue recognition practices just three months after reaching a settlement with the SEC.
- SMCI has paid nearly a billion dollars over the past three years to non-arm's-length suppliers such as Ablecom and Compuware.
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.
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