--- title: "The 2017–2020 accounting investigation, restatement and SEC settlement" language: en canonical: https://dossiertwist.com/dossiers/super-micro-computer-inc/accounting-investigation-2017-2020/ as_of: 2026-10-17 keywords: ["Super Micro Computer","Supermicro","SMCI","Charles Liang","Sara Liu","Wally Liaw","Ablecom Technology","Compuware Technology","Steve Liang","Bill Liang","related-party transactions","Ernst & Young resignation","Special Committee","SEC cease-and-desist order","restatement","Nasdaq delisting","export controls","United States v. Liaw","securities class action","Leadtek Research"] --- # The 2017–2020 accounting investigation, restatement and SEC settlement **Question.** What happened in the 2017–2020 accounting investigation, restatement, delisting and SEC settlement? **Answer.** In August 2017 Supermicro's Audit Committee began investigating revenue recognition and internal controls; the company stopped filing periodic reports, its shares were suspended from Nasdaq in August 2018 and delisted in March 2019, and in May 2019 it filed a fiscal 2017 annual report restating fiscal 2015 and 2016. On August 25, 2020 the SEC settled cease-and-desist proceedings finding that Supermicro had prematurely recognized revenue and understated expenses from at least fiscal 2015 through fiscal 2017, with a $17.5 million penalty; the company neither admitted nor denied the findings. Its former Chief Financial Officer settled separately, and the Chief Executive Officer paid the company $2,122,000 under Section 304 of the Sarbanes-Oxley Act. ## The 2017 investigation and the non-reliance decision - Analysis: Supermicro announced its fourth-quarter fiscal 2017 results on August 3, 2017 (its fiscal year ends on June 30), but several weeks later said it could not file its annual report on time, and on September 15, 2017 it disclosed an audit committee review, according to the SEC's later order. The review had begun in August 2017, before the fiscal 2017 financial statements were issued: the Audit Committee, assisted by outside counsel and forensic accountants, investigated accounting and internal-control matters, principally revenue recognition, and expanded procedures and a management review of historical financial reporting followed. In the course of that work the committee and management found that certain employees had violated the Code of Business Conduct and Ethics, and discovered accounting and financial reporting errors and “certain irregularities”. Supermicro then filed no annual or quarterly report from its third-quarter fiscal 2017 report until May 2019. [src-015] [src-016] - Analysis: On January 30, 2018 Supermicro announced that three senior executives had resigned that day: Wally Liaw, Senior Vice President of International Sales, who also left the board; Phidias Chou, Senior Vice President, Worldwide Sales; and Howard Hideshima, Senior Vice President and Chief Financial Officer. Kevin Bauer, Senior Vice President, Corporate Development and Strategy since January 2017, became Chief Financial Officer the same day. [src-006] - Analysis: On November 14, 2018 the board, on the Audit Committee's recommendation and in consultation with management, determined that the financial statements and auditor's reports for fiscal 2015 and 2016, the quarterly reports for those years and those for the quarters ended September 30 and December 31, 2016 and March 31, 2017 should no longer be relied upon. The errors primarily concerned the timing of revenue recognition — quarter-end cut-off and the allocation of revenue under contracts with service elements — and the classification of certain inventory. In the current report filed the next day the company said that, to date, none of the revenue-recognition errors identified involved revenue that could not ultimately be recognized; that it would report material weaknesses in internal control over financial reporting and ineffective disclosure controls in its fiscal 2017 annual report; that it had begun remediation; and that the Audit Committee had discussed the disclosure with its independent auditor. [src-040] [src-038] - Analysis: With the same report Supermicro released preliminary results for the quarter ended September 30, 2018: its expected non-GAAP earnings per share excluded $16.1 million of Audit Committee investigation and review expense, and it reported $104.1 million of cash, cash equivalents and short-term investments and $79.6 million of bank debt at that date. [src-040] ## What the restatement changed - Analysis: Supermicro filed its fiscal 2017 annual report on May 17, 2019. It was the first issuance of the fiscal 2017 financial statements and restated — corrected and reissued — the balance sheet at June 30, 2016 and the fiscal 2016 and 2015 statements of operations, comprehensive income, stockholders' equity and cash flows, together with the selected financial data for those years. Before it, the company filed amended quarterly reports with restated figures for the quarters ended September 30 and December 31, 2016 and March 31, 2017; the amendment for the March 2017 quarter superseded in its entirety the original report filed on May 10, 2017. Deloitte & Touche LLP's audit report, dated May 16, 2019, stated that the 2016 and 2015 statements had been restated to correct misstatements and drew attention to the company's significant purchases from and sales to two related parties. [src-016] [src-019] [src-046] - Analysis: According to the restatement note, the errors and certain irregularities mainly concerned when revenue was recognized; when expenses were recorded for inventory used for engineering and marketing and for warranties on defective products that were not returned; and inventory taken off the books although the company was obliged to buy it back. Product revenue for fiscal 2016 and 2015 had been recognized prematurely, which the note attributed in part to “an aggressive focus on quarterly revenue without sufficient focus on compliance”. The corrections increased fiscal 2016 net sales by $8.8 million and reduced fiscal 2015 net sales by $21.5 million, while cost of sales rose by $11.1 million for 2016 and fell by $21.7 million for 2015. Corrections recorded in the quarter ended June 30, 2016 raised that quarter's net sales by $6.9 million and cut its gross profit by $2.9 million and net income by $1.5 million. Cumulative adjustments at June 30, 2014 reduced retained earnings by $17,604,000 and total stockholders' equity from $469,231,000 as previously reported to $452,158,000 as restated. [src-016] - Analysis: The SEC's 2020 order tabulates the net effect in thousands of dollars. Fiscal 2015 net sales went from $1,991,155 as reported to $1,954,353 as restated (−1.88%) and income from operations from $146,746 to $132,646 (−10.63%); fiscal 2016 net sales from $2,215,573 to $2,225,022 (+0.42%) and income from operations from $106,850 to $107,491 (+0.60%); and fiscal 2017 net sales as first reported, $2,529,915, became $2,484,929 (−1.81%), with income from operations falling from $101,877 to $94,875 (−7.38%). The order notes that these are net effects of reporting errors in their proper periods and that the gross effect in any single period was substantially larger. [src-015] ## Late filings and the loss of the Nasdaq listing - Analysis: During the investigation and restatement the EDGAR index lists ten notices of late filing by Supermicro — for its annual reports in August 2017, August 2018 and August 2019 and for seven quarterly reports between November 2017 and November 2019 — and nine current reports under Form 8-K Item 3.01, the item used for notices about continued-listing standards, filed between September 15, 2017 and March 11, 2019. Only the index entries of those listing notices are retained. [src-037] [src-038] - Analysis: Because it had not filed its periodic reports with the SEC and had not held an annual meeting, Supermicro could not meet Nasdaq's listing standards: trading in its common stock on the Nasdaq Global Select Market was suspended effective August 23, 2018, and the stock was formally delisted effective March 22, 2019 and quoted on the OTC market under the symbol SMCI. The fiscal 2017 annual report, filed in May 2019, answered “No” to whether the company had filed all required reports in the preceding 12 months. Supermicro became current in its SEC filings in December 2019, according to its 2020 proxy statement, and its stock was relisted on the Nasdaq Global Select Market on January 14, 2020; the SEC's order of that year records that the company had since improved its internal controls and reorganized its management team. In its fiscal 2020 annual report Supermicro said it did not intend to file a separate annual report for fiscal 2018 or the quarterly reports for the quarters ended September 30, 2017, December 31, 2017 and March 31, 2018. [src-016] [src-046] [src-062] [src-019] [src-015] - Analysis: The fiscal 2017 annual report also disclosed late insider ownership reports under Section 16(a) of the Exchange Act for that year: one each by Howard Hideshima, Sherman Tuan and Wally Liaw and one by Phidias Chou covering two transactions, and two by each of Charles Liang and Sara Liu, each covering one transaction. [src-016] ## The cost of the investigation - Analysis: The investigation and its aftermath were costly. The fiscal 2017 annual report cited professional fees of $40.6 million in fiscal 2018 and $50.7 million in the first three quarters of fiscal 2019 for the Audit Committee's investigation, the related procedures and analysis, audit and compliance work and related litigation; the fiscal 2019 annual report, which defines the scope of the fees differently, cited about $42 million for fiscal 2018 and about $67 million for fiscal 2019 for work connected with the delayed 2017 annual report. Deloitte's audit fees rose from $2,427,000 for fiscal 2016 to $22,259,000 for fiscal 2017. Because the fiscal 2017 annual report was not filed until May 17, 2019, owing among other matters to material weaknesses in internal control, the Compensation Committee kept the named executive officers' fiscal 2019 base salaries at fiscal 2018 levels while the review of those matters continued. [src-016] [src-044] [src-019] ## The SEC investigation and settlement - Analysis: In an amended quarterly report filed after March 31, 2019 Supermicro disclosed that it had received SEC subpoenas about the matters behind its late fiscal 2017 annual report and was cooperating fully. It also received an SEC subpoena after October 2018 reporting by Bloomberg Businessweek which, according to the company's fiscal 2017 annual report, alleged that malicious hardware chips had been implanted on Supermicro motherboards during manufacturing at a contract manufacturer's facilities in China; Supermicro called the reporting false and widely discredited. The company says a third-party investigations firm tested a representative sample of its motherboards, including the type shown in the article, and found no evidence of malicious hardware, and that neither the publication nor any customer had provided an example of an altered motherboard. That characterization is Supermicro's own: the article is not among the records reviewed, which establish nothing about its accuracy, and the SEC's August 2020 order does not mention it. Supermicro's fiscal 2020 annual report says it cooperated with the SEC's investigation concerning the article and that its consent to the August 25, 2020 order resolved all matters under investigation. [src-046] [src-016] [src-062] - Analysis: On August 25, 2020 the SEC instituted and simultaneously settled cease-and-desist proceedings against Super Micro Computer, Inc. The order found that from at least fiscal 2015 through fiscal 2017 the company engaged in improper accounting, prematurely recognizing revenue and understating expenses, and as a result filed materially misstated financial statements in its annual, quarterly and current reports. Supermicro consented without admitting or denying the findings, except as to the Commission's jurisdiction, and the order states that its findings were made under the company's offer of settlement and are not binding on any other person or entity. [src-015] - Analysis: The order describes the practices behind the misstatements: recognizing revenue before goods were delivered or ahead of customer delivery dates; recording revenue on shipment to a large customer whose purchase orders specified FOB destination, under which the goods remained the seller's until delivered (more than $45 million recognized prematurely for that customer from fiscal 2015 through fiscal 2017); recognizing revenue before customer acceptance; shipping incomplete or mis-assembled goods at quarter-end; recognizing revenue on shipment to a large distributor that could pay only after its own sales; holding bills of lading for certain overseas customers, primarily in Russia and other Eastern European countries, until payment while booking revenue on shipment; recognizing embedded extended-warranty revenue at the time of sale; and under-reporting expenses by using cooperative marketing funds to pay unrelated costs. These are the Commission's findings in a settled order, which Supermicro neither admitted nor denied. [src-015] - Analysis: The order found that Supermicro violated Sections 17(a)(2) and (3) of the Securities Act, Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13, ordered it to cease and desist, and required it to pay a civil money penalty of $17,500,000 within 10 days. The company agreed not to seek to offset the penalty against compensatory damages in related private investor actions, and the Commission said it had considered the company's remedial acts in accepting the settlement. As with the rest of the order, Supermicro neither admitted nor denied the findings. [src-015] - Analysis: The same day the SEC settled separate cease-and-desist proceedings against Howard Hideshima, Supermicro's former Chief Financial Officer. In its orders the Commission found that the respondents violated the federal securities laws through the improper accounting of fiscal 2015 to 2017 and that Hideshima signed and/or approved the misstated reports; he was ordered to pay disgorgement of $260,844, prejudgment interest of $40,212 and a civil money penalty of $50,000. The records reviewed include the SEC's Fair Fund page describing his order rather than the order itself, and do not state whether he admitted or denied the findings. [src-055] - Analysis: Supermicro's fiscal 2020 annual report states that its Chief Executive Officer concluded a settlement with the SEC on August 25, 2020 under which he would pay the company $2,122,000 as reimbursement of profits from certain stock sales during the relevant period, under Section 304 of the Sarbanes-Oxley Act of 2002; the fiscal 2021 report says the amount was paid in the first quarter of fiscal 2021. A federal court order of September 30, 2026 in the 2024 securities class action, summarizing an SEC document of which it took judicial notice, says that Charles Liang agreed to reimburse Supermicro $2.1 million in stock compensation and that Hideshima paid disgorgement to resolve the SEC matter. The SEC's own document on Liang's settlement is not among the records reviewed; the court calls the amount stock compensation and the company profits from stock sales, and the records contain no SEC finding of misconduct by Liang himself. [src-072] [src-062] [src-061] - Analysis: The penalties, disgorgement and interest paid by Supermicro and Hideshima were combined into a Fair Fund — a fund through which the SEC returns such payments to investors — of $17,851,056 for investors harmed by the conduct described in the orders; the SEC states that both respondents paid in full. It appointed Miller Kaplan Arase LLP as tax administrator on November 6, 2020 and Kurtzman Carson Consultants, LLC as fund administrator on December 22, 2020, approved a plan of distribution on April 8, 2021 and amended it on February 7, 2022. An order of December 20, 2023 approved paying $455,627.22 from the fund for the administrator's services from December 22, 2020 to July 31, 2023. [src-055] [src-082] ## The 2018 securities class action - Analysis: On February 8, 2018 two putative securities class actions were filed in the U.S. District Court for the Northern District of California against Supermicro, its Chief Executive Officer and its former Chief Financial Officer (Hessefort v. Super Micro Computer, Inc., No. 18-cv-00838, and United Union of Roofers v. Super Micro Computer, Inc., No. 18-cv-00850), alleging violations of Section 10(b) of the Exchange Act through misrepresentations or omissions about revenue recognition. The lead plaintiff, the New York Hotel Trades Council & Hotel Association of New York City, Inc. Pension Fund, added the senior vice president of investor relations as a defendant. Supermicro said it believed the allegations were without merit and intended to defend vigorously. On March 29, 2021 the court dismissed with prejudice the claims against former head of investor relations Perry Hayes and the Section 10(b) claim against Wally Liaw, and refused to dismiss the claims against Supermicro, Charles Liang and former CFO Howard Hideshima. The parties settled for $18,250,000, of which Supermicro funded $2,000,000, and the court granted final approval on May 5, 2023; the plaintiffs' allegations were never adjudicated on the merits. [src-046] [src-045] ## Earlier episodes: 2008 and 2015 - Analysis: Supermicro had declared earlier financial statements unreliable once before. On May 8, 2008 its Audit Committee, on management's recommendation, concluded that the unaudited financial statements in the quarterly report for the quarter ended December 31, 2007 (with the 2006 comparative period) should no longer be relied upon, because the company had wrongly moved $2,418,000 and $67,000 of excess tax benefits from stock-option exercises, for the six months ended December 31, 2007 and 2006, from operating to financing cash flows. Only the cash-flow statements were to be restated; the balance sheets and statements of operations were unaffected. Supermicro said management and the Audit Committee had discussed the matter with its auditor, Deloitte & Touche LLP, and that it expected to report a material weakness in internal control over the classification of cash flows. The EDGAR index dates the non-reliance report May 14, 2008 and lists two continued-listing notices under Item 3.01 in April 2008; the amended quarterly report and the content of the April notices are not among the records reviewed. [src-038] [src-039] - Analysis: On August 31, 2015 Supermicro filed a notice that its fiscal 2015 annual report would be late, and on November 10, 2015 a similar notice for a quarterly report; it later said it had cooperated from late 2015 to 2017 with an SEC investigation of marketing expenses that contained irregularities discovered by its management and disclosed on August 31, 2015. On September 4, 2015 a securities complaint, Deason v. Super Micro Computer, Inc., was filed against Supermicro, its Chief Executive Officer Charles Liang and its former Chief Financial Officer, claiming that the announced delay had revealed earlier misrepresentations. The court dismissed the amended complaint without leave to amend on June 27, 2018 and entered judgment for the defendants, and the litigation ended on November 1, 2018 when the plaintiff withdrew an appeal. [src-037] [src-046] - Attributed: On September 4, 2015 a securities complaint, Deason v. Super Micro Computer, Inc., No. 15-cv-04049, was filed in the U.S. District Court for the Northern District of California against Supermicro, its Chief Executive Officer Charles Liang and its former Chief Financial Officer. It claimed violations of Section 10(b) of the Exchange Act through alleged misrepresentations or omissions said to have been revealed when Supermicro announced on August 31, 2015 that its fiscal 2015 annual report would be delayed to complete an investigation into certain marketing expenses. [src-046] - Qualification: These were the plaintiff's allegations; no court found them to be true. - Response: After an earlier successful round of motions to dismiss, the defendants moved on January 12, 2018 to dismiss the amended complaint because it pleaded neither falsity nor scienter. - Outcome: On June 27, 2018 the court granted the motion without leave to amend and entered judgment for the defendants. The plaintiff appealed on July 24, 2018 but voluntarily dismissed the appeal, ending the litigation on November 1, 2018. ## Sources - [src-015] SEC order instituting settled cease-and-desist proceedings against Super Micro Computer, Inc. (Securities Act Release No. 10822; File No. 3-19927), U.S. Securities and Exchange Commission, 2020-08-25 - [src-016] Super Micro Computer, Inc. Form 10-K for the fiscal year ended June 30, 2017 (filed May 17, 2019), U.S. Securities and Exchange Commission (EDGAR), 2019-05-17 - [src-006] Super Micro Computer, Inc. Form 8-K reporting officer changes (January 30, 2018), U.S. Securities and Exchange Commission (EDGAR), 2018-01-30 - [src-040] Super Micro Computer, Inc. Form 8-K, Items 2.02 and 4.02, and results press release (November 15, 2018), U.S. Securities and Exchange Commission (EDGAR), 2018-11-15 - [src-038] SEC EDGAR filing index of Super Micro Computer, Inc.: Forms 8-K filed before February 2020, U.S. Securities and Exchange Commission (EDGAR) - [src-019] Super Micro Computer, Inc. definitive proxy statement (Schedule 14A) for the 2020 annual meeting, U.S. Securities and Exchange Commission (EDGAR), 2020-04-21 - [src-046] Super Micro Computer, Inc. Form 10-Q/A for the quarter ended March 31, 2017 (filed May 17, 2019), U.S. Securities and Exchange Commission (EDGAR), 2019-05-17 - [src-037] SEC EDGAR filing index of Super Micro Computer, Inc.: notifications of late filing (Form NT), U.S. Securities and Exchange Commission (EDGAR) - [src-062] Super Micro Computer, Inc. Form 10-K for the fiscal year ended June 30, 2020, U.S. Securities and Exchange Commission (EDGAR), 2020-08-28 - [src-044] Super Micro Computer, Inc. Form 10-K for the fiscal year ended June 30, 2019, U.S. Securities and Exchange Commission (EDGAR), 2019-12-19 - [src-055] SEC Division of Enforcement page on the Super Micro Computer, Inc. Fair Fund, U.S. Securities and Exchange Commission - [src-072] Court record source · src-072 - [src-061] Super Micro Computer, Inc. Form 10-K for the fiscal year ended June 30, 2021, U.S. Securities and Exchange Commission (EDGAR), 2021-08-27 - [src-082] SEC order approving fund administrator fees, In the Matter of Super Micro Computer, Inc. and Howard Hideshima (Release No. 34-99215), U.S. Securities and Exchange Commission, 2023-12-20 - [src-045] Super Micro Computer, Inc. Form 10-K for the fiscal year ended June 30, 2023, U.S. Securities and Exchange Commission (EDGAR), 2023-08-25 - [src-039] Super Micro Computer, Inc. Form 8-K, Item 4.02, on non-reliance on quarterly cash-flow statements, U.S. Securities and Exchange Commission (EDGAR), 2008-05-14