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Super Micro\u2019s stock lost nearly a quarter of its value on Wednesday in another dark day for the once high-flying AI darling. The drop came after the server hardware company delayed<\/a> the submission of its annual financial report for the fiscal year 2024, often a red flag for investors that there could be significant financial, accounting, or legal issues at a company.<\/p>\n Super Micro management told shareholders it needs time to complete an assessment of the internal controls of its financial reporting.<\/p>\n A representative confirmed to Fortune<\/em> that Super Micro will not file its annual report for fiscal year 2024 within \u201cthe prescribed time period,\u201d but didn\u2019t offer any indication as to when the report will be filed. \u201cAdditional time is needed to assess some internal controls,\u201d the representative said, echoing the company\u2019s public statements.<\/p>\n The filing delay comes after Super Micro was hit with accusations of accounting manipulation and sanctions evasion by the activist short seller Hindenburg Research on Tuesday.<\/p>\n In a 19,000 word short report<\/a>, Hindenburg Research said it found \u201cglaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures,\u201d and more. The short seller and research company conducted a three-month investigation into Supermicro that included interviews with insiders, industry experts, and a review of accounting and litigation records. The controversial firm is named after the famed airship disaster, and targets companies it believes are headed for a dramatic fall. Hindenburg\u2019s posts often trigger major stock price drops, or legal and regulatory investigations.<\/p>\n \u201cThe Company does not comment on rumors and speculation,\u201d a representative for Super Micro told Fortune<\/em> when asked about the short report.<\/p>\n Super Micro provides servers, networking equipment, storage systems, and other critical components and solutions for data centers. With the AI boom in full-swing in recent years, demand for its products has exploded. The company, which was founded by Charles Liang in 1993, was added<\/a> to the Fortune 500<\/em> for the first time this year after its annual fiscal revenue hit a record $7.12 billion.<\/p>\n Investors were quick to notice Super Micro\u2019s AI opportunity over the past few years. Its stock soared 6368% from around $19 per share in August 2019 to its intraday peak of $1,229 on March 8 of this year. Just 10 days later, the company was added to the S&P 500 Index in \u201crecognition of remarkable growth in sales and market capitalization.\u201d<\/p>\n More recently, however, Super Micro has struggled. Though the company\u2019s revenue has continued to grow impressively, margins have been under pressure due to rising server production costs and competition from Dell<\/a>, Hewlett Packard Enterprises, IBM<\/a>, and others. Gross profit margins fell to 11.3% in the company\u2019s fiscal fourth quarter that ended in June, down from 17% a year ago. Now, after Hindenburg\u2019s short report, Super Micro shares are down more than 65% from their March peak.\u00a0<\/p>\n Hindenburg\u2019s short report includes a number of serious allegations of impropriety, while also detailing why Hindenburg founder Nathan Anderson and his team are bearish on Super Micro stock. Fortune<\/em> could not independently verify all of the claims in Hindenburg\u2019s report.\u00a0<\/p>\n One of the more serious allegations involves a claim that Super Micro continues to engage in accounting violations for which it was previously fined<\/a> by the Securities and Exchange Commission (SEC).\u00a0<\/p>\n In August 2020, Super Micro and its former CFO, Howard Hideshima, were charged<\/a> by the SEC for \u201cwidespread accounting violations,\u201d particularly improperly recognizing revenue and understating expenses over a three year period.\u00a0<\/p>\n Melissa Hodgman, an associate director in the SEC\u2019s Division of Enforcement, said in a statement after the charges were filed that misreporting revenue in this way can give \u201cinvestors a distorted view of a company\u2019s financial condition.\u201d<\/p>\n Hindenburg went a step further on Tuesday, arguing it resulted \u201cin artificially elevated sales, earnings and profit margins.\u201d Even worse, the short-seller alleged that just three months after Super Micro paid $17.5 million to settle its charges with the SEC, the company began rehiring former executives who were involved in the scandal.<\/p>\n \u201cA former salesperson told us: \u2018Almost all of them are back. Almost all of the people that were let go that were the cause of this malfeasance,\u2019\u201d Hindenburg\u2019s report reads.<\/p>\n Super Micro was also shipping high-tech products to Russia in violation of U.S. export bans, including components that could potentially be used for military purposes, according to Hindenburg.<\/p>\n \u201cExports of Super Micro\u2019s high-tech components to Russia have spiked ~3x since the invasion of Ukraine, apparently violating U.S. export bans, according to our review of more than 45,000 import\/export transactions,\u201d the short seller\u2019s report reads.<\/p>\n The final major accusation involves questionable financial relationships at Super Micro. Hindenburg noted that $983 million has been paid to Super Micro\u2019s suppliers, Ablecom and Compuware, over the past three years. The issue, according to Hindenburg, is that these companies are controlled and partly owned by Super Micro CEO Charles Liang\u2019s brothers, Steve Liang and Bill Liang.\u00a0<\/p>\n As of the end of 2023, Steve Liang was Abelcom\u2019s largest shareholder and CEO, according to SEC filings<\/a>. And Bill Liang was CEO of Compuware, a member of Compuware\u2019s board of directors, and a holder of \u201ca significant equity interest in Compuware.\u201d<\/p>\n Hindenburg noted that 99.8% of Abelcom\u2019s exports to the U.S. and 99.7% of Compuware\u2019s U.S. exports went to Super Micro, according to trade records. \u201cThe relationships seem oddly circular,\u201d Hindenburg\u2019s report reads.<\/p>\n Founded by Anderson in 2017, Hindenburg Research<\/a> is a short seller known for its big, and typically very public, bets against some of the finance world\u2019s biggest fish.<\/p>\n In April 2023, it targeted the billionaire Carl Icahn, who made his name as a \u201ccorporate raider\u201d in the 1980s, alleging that his namesake company, Icahn Enterprises<\/a>, had artificially inflated asset values and offered an unsustainable dividend to lure retail investors into a \u201cponzi-like<\/a>\u201d structure. Icahn Enterprises eventually cut its dividend in half, and its shares have plummeted nearly 75% since the release of Hindenburg\u2019s short report. Icahn also settled charges<\/a> with the SEC this year, agreeing to pay $2 million in penalties for failing to disclose that he pledged the majority of his Icahn Enterprises stock for billions in personal margin loans.<\/p>\n Hindenburg had a major run-in with the Indian billionaire Gautam Adani<\/a> in 2023 as well, then Asia\u2019s richest man, alleging that he was engaged in \u201ca brazen stock manipulation and accounting fraud scheme over the course of decades.\u201d The short seller is also known for targeting the electric vehicle maker Nikola in 2020 with accusations<\/a> that the company made exaggerated claims about its vehicles, engaged in fraudulent marketing, and misrepresented its financial status. Nikola\u2019s market cap has dropped from $34 billion at its 2020 peak to just over $330 million today.<\/p>\n Now, Super Micro, the market\u2019s AI favorite, is under Hindenburg\u2019s intimidating microscope\u2014and, like always, lawyers are circling, asking investors with major losses to come forward for their investigation into \u201cpotential securities claims<\/a>.\u201d<\/p>\n<\/div>\n\nThe Super Micro allegations<\/h2>\n
Hindenburg\u2019s background\u00a0<\/h2>\n