Silicon Valley-based company is Hindenburg's new target

The US-based short seller accused the firm of accounting manipulation and sanctions evasion in a recent report, leading to an almost 8 percent drop in the Nasdaq-listed company’s shares during pre-market trading on August 27, reported Moneycontrol.

The report, based on a three-month-long investigation by Hindenburg, alleges the discovery of "accounting red flags, undisclosed related party transactions, sanctions and export control violations, and customer-related issues."

According to Hindenburg, the company was removed from Nasdaq for some time for failing to submit financial statements in 2018, and later charged by the SEC for “widespread accounting violations,” the Hindenburg note said, which were linked to "$200+ million in improperly recognized revenue and understated expenses", resulting in inflated sales, earnings and profit margins.

The Hindenburg Research report also makes reference to litigation records and interviews with former employees to indicate that the company re-hired executives "directly involved in the accounting scandal" just three months after settling with the SEC for $17.5 million.

A former CFO of Super Micro - Howard Hideshima - was charged by the SEC with accounting violations after having left the company was hired again by a key related party owned by Super Micro CEO’s brother, said the note.

According to Hindenburg, two related-party suppliers controlled by Super Micro CEO Charles Liang’s brothers have received $983 million over the past three years. One of these suppliers is partially owned by Charles Liang and his wife. The report claims that Super Micro supplies components to these entities, which then assemble and sell the products back to Super Micro. Further, these suppliers rent warehouse and factory space to Super Micro, despite the company having its factory.

The Hindenburg report also revealed that in 2006, Super Micro pleaded guilty to a felony charge for exporting banned components to Iran. The company's CEO attributed this violation to the firm's early stages of development, stating they have since learned from their mistakes.

The report further alleges that Super Micro has been exporting high-tech components to Russia, with such transactions reportedly tripling since the start of the Ukraine war, potentially violating U.S. export bans. This conclusion is based on an analysis of over 45,000 import/export transactions.

Hindenburg also noted that Nvidia, a key partner and chip supplier, and Tesla, which sourced its servers exclusively from Super Micro in 2023, have distanced themselves from the company. According to the report, accounting issues and quality concerns have led several major companies to either completely drop Super Micro or significantly reduce their business dealings with them.

Hindenburg has included a disclaimer in the note, stating that it has taken a short position in Super Micro Computer shares.

"This report represents our opinion, and we encourage every reader to do their own due diligence," it said.

In early August, Super Micro Computer reported revenue and profit below analysts’ expectations, though its annual sales outlook exceeded Wall Street projections. The company also announced a 10-for-1 stock split, with trading set to begin on October 1.

Despite strong demand for servers, which has caused the Nasdaq-listed IT infrastructure giant's shares to more than double this year, the stock is currently down about 48% from its peak in March.

Earlier in 2024, Super Micro’s market value had more than quadrupled before plummeting nearly 60% as investors started to question the rapid increase in its stock price.