US Markets
Wednesday, October 30th, 2024 3:31 pm EDT
Key Points
- Auditor Resignation and Stock Drop: Ernst & Young (EY) resigned as Super Micro’s auditor due to governance concerns and conflicts over board independence, leading to a sharp 35% drop in Super Micro’s share price.
- Governance and Internal Control Concerns: EY flagged issues with Super Micro’s financial controls and transparency, questioning the board’s independence from CEO Charles Liang, which prompted Super Micro to set up a special committee and initiate a review with the law firm Cooley and a forensic accounting firm.
- Previous Regulatory Issues: Super Micro has faced regulatory scrutiny before, including a $17.5 million SEC penalty in 2020 over improper revenue recording, with recent developments potentially impacting its regulatory standing and investor confidence.
Super Micro’s shares plummeted by as much as 35% on Wednesday following the resignation of its auditor, Ernst & Young (EY), after extended disagreements with the company regarding governance and board independence. EY, which had been contracted to audit Super Micro for the 2024 fiscal year, cited concerns over the company’s internal financial controls and the independence of its board from CEO Charles Liang and other senior management members. EY expressed discomfort with being “associated with the financial statements prepared by management” and noted an inability to rely on statements from both Super Micro’s management and its audit committee, prompting its decision to resign.
The disagreements between Super Micro and EY date back to late July, when the auditor first raised alarms about potential issues with the company’s financial controls and transparency. In response, Super Micro appointed a special board committee to investigate its internal controls, enlisting the support of the law firm Cooley and a forensic accounting firm to conduct a thorough review. This audit remains underway, as noted in recent regulatory filings, though no additional insights or conclusions have yet been provided by the company.
The announcement follows years of regulatory challenges for Super Micro, which previously encountered scrutiny over its accounting practices. In 2020, the company paid a $17.5 million settlement to the U.S. Securities and Exchange Commission (SEC) following allegations of prematurely and improperly recording revenue. These past issues have resurfaced in investor concerns, especially given Super Micro’s expanded role in the tech industry. The firm produces computing hardware that supports data storage, web services, and applications, with prominent customers in the artificial intelligence sector, including Nvidia, AMD, and Intel. Following a successful year with a 246% share surge in 2023 and inclusion in the S&P 500 in March, Super Micro’s stock is now facing significant volatility due to renewed concerns over its governance and accounting practices.
Notably, EY’s departure and concerns about governance preceded a short-seller report that highlighted weaknesses in Super Micro’s financial controls, suggesting broader structural challenges within the company. While Super Micro has committed to investigating these internal issues, the recent auditor resignation and lack of timely financial reporting could potentially complicate the company’s regulatory standing and investor confidence. Representatives from Super Micro and EY have not yet provided further comments on the situation.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/10/30/super-micro-auditor-resigns-after-raising-concerns-months-earlier.html
