Super Micro Computer’s auditor EY walks citing “integrity” concerns
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The news: Super Micro Computer said its auditor, Ernst & Young (EY) resigned following integrity concerns and issues related to governance, internal financial controls and transparency at the AI server maker.
The context: EY’s exit follows SMIC’s delayed financial filings following a short seller report by Hindenburg Research that in August claimed "accounting manipulation", as well as news last month that the Department of Justice had begun an investigation into claims from a former SMCI employee claiming the company had sought to overstate its revenue.
In late July, EY had raised concerns about matters "relating to governance, transparency and completeness of communications to EY, and other matters pertaining to the company’s internal control over financial reporting,” SMCI said.
That led the company to appoint a special board committee to review the matters, engaging law firm Cooley LLP and forensic accounting firm Secretariat Advisors LLC.
Newly surfaced information through that ongoing review, led EY to resign after raising questions, “including about whether the company demonstrates a commitment to integrity and ethical values … about the ability and willingness of the audit committee and overall board to demonstrate and act as an oversight body that is independent of the CEO and other members of management,” SMCI's statement to the exchange says.
The numbers: Super Micro’s shares fell over 34% to USD32.30 each following the news, reducing the stock’s earlier exponential gains from AI demand to a 16% increase year-to-date.
In 2020, Super Micro settled an investigation by the SEC into its accounting practices by paying USD17.5 million but without admitting or denying any of the regulator’s allegations.
What they said: “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, and after concluding we can no longer provide the Audit Services in accordance with applicable law or professional obligations,” EY’s resignation letter stated.
Super Micro said it disagreed with the accounting firm's decision, and said it does not expect the "resolution of any matters raised by EY" to result in the restatement of its quarterly reports for fiscal 2024 or prior fiscal years.
The company also said it would hold a conference call with investor next week to provide a business update for 1Q of fiscal 2025.
Hindenburg Research founder Nathan Anderson said: "As far as auditor statements go, E&Y's SMCI resignation letter is about as strongly worded as I have seen."
The sources: Super Micro Computer statement , Reuters , Bloomberg
