Supermicro Announces Completion of Review by Independent Special Committee
Super Micro Computer (SMCI) announced the completion of its independent Special Committee review, formed in response to concerns raised by former auditor Ernst & Young. The committee found no evidence of misconduct by management or Board of Directors, and confirmed the Audit Committee acted independently. The investigation, supported by Cooley LLP and Secretariat Advisors, reviewed revenue recognition practices, export controls, and related party disclosures. The Board adopted all committee recommendations, including transitioning to a new CFO, appointing a Chief Accounting Officer, and expanding the legal department. No restatement of financial reports is expected.
Super Micro Computer (SMCI) ha annunciato il completamento della revisione della sua Commissione Speciale indipendente, costituita in risposta alle preoccupazioni sollevate dal precedente revisore Ernst & Young. La commissione non ha trovato prove di cattiva condotta da parte della direzione o del Consiglio di Amministrazione, confermando che il Comitato di Audit ha agito in modo indipendente. L'indagine, supportata da Cooley LLP e Secretariat Advisors, ha esaminato le pratiche di riconoscimento dei ricavi, i controlli all'esportazione e le divulgazioni delle parti correlate. Il Consiglio ha adottato tutte le raccomandazioni della commissione, tra cui il passaggio a un nuovo CFO, la nomina di un Chief Accounting Officer e l'espansione del dipartimento legale. Non si prevede alcuna rettifica dei rapporti finanziari.
Super Micro Computer (SMCI) anunció la finalización de su revisión independiente del Comité Especial, formado en respuesta a las preocupaciones planteadas por el anterior auditor Ernst & Young. El comité no encontró pruebas de mala conducta por parte de la dirección o de la Junta Directiva, y confirmó que el Comité de Auditoría actuó de manera independiente. La investigación, apoyada por Cooley LLP y Secretariat Advisors, revisó las prácticas de reconocimiento de ingresos, los controles de exportación y las divulgaciones de partes relacionadas. La Junta adoptó todas las recomendaciones del comité, incluida la transición a un nuevo CFO, la designación de un Chief Accounting Officer y la expansión del departamento legal. No se espera ninguna revisión de los informes financieros.
슈퍼 마이크로 컴퓨터 (SMCI)는 이전 감사인인 어니스트 앤 영이 제기한 우려에 대한 대응으로 구성된 독립 특별 위원회의 검토가 완료되었다고 발표했습니다. 위원회는 경영진이나 이사회에 대한 위법 행위의 증거가 없다고 밝혔으며, 감사위원회가 독립적으로 행동했음을 확인했습니다. 이 조사는 Cooley LLP와 Secretariat Advisors의 지원을 받아 수익 인식 관행, 수출 통제 및 관련 당사자 공시를 검토했습니다. 이사회는 새로운 CFO로의 전환, Chief Accounting Officer 임명, 법무부 확대 등 위원회의 모든 권고 사항을 채택했습니다. 재무 보고서의 수정은 예상되지 않습니다.
Super Micro Computer (SMCI) a annoncé l'achèvement de l'examen de son Comité Spécial indépendant, constitué en réponse aux préoccupations soulevées par l'ancien auditeur Ernst & Young. Le comité n'a trouvé aucune preuve de faute de la part de la direction ou du Conseil d'Administration et a confirmé que le Comité d'Audit a agi de manière indépendante. L'enquête, soutenue par Cooley LLP et Secretariat Advisors, a examiné les pratiques de reconnaissance des revenus, les contrôles à l'exportation et les divulgations concernant les parties liées. Le Conseil a adopté toutes les recommandations du comité, y compris la transition vers un nouveau CFO, la nomination d'un Chief Accounting Officer et l'expansion du département juridique. Aucun redressement des rapports financiers n'est prévu.
Super Micro Computer (SMCI) gab bekannt, dass die Überprüfung des unabhängigen Sonderausschusses, der aufgrund von Bedenken des ehemaligen Prüfers Ernst & Young gebildet wurde, abgeschlossen ist. Der Ausschuss fand keine Beweise für Fehlverhalten seitens des Managements oder des Vorstands und bestätigte, dass der Prüfungs Ausschuss unabhängig gehandelt hat. Die Untersuchung, unterstützt von Cooley LLP und Secretariat Advisors, prüfte die Praktiken zur Umsatzrealisierung, Exportkontrollen und die Offenlegung von verwandten Parteien. Der Vorstand nahm alle Empfehlungen des Ausschusses an, darunter den Wechsel zu einem neuen CFO, die Ernennung eines Chief Accounting Officer und die Erweiterung der Rechtsabteilung. Es wird nicht erwartet, dass Finanzberichte neu bilanziert werden.
- No evidence of misconduct or fraud found by Special Committee
- No restatement of financial reports required
- Revenue recognition practices verified as appropriate
- Company implementing stronger governance measures
- Audit Committee confirmed to be acting independently
- CFO transition required due to process lapses
- Identified lapses in employee rehiring processes
- Current delayed filing status with SEC
- Need for significant organizational restructuring
Insights
The Special Committee's comprehensive investigation clearing Supermicro of misconduct allegations and confirming no need for financial restatements is a significant positive development. The investigation, involving over 9,000 hours of independent counsel review and 2,500 hours of forensic accounting work, found no evidence of fraud or improper revenue recognition practices.
Key positive outcomes include:
- No restatement of financials required
- Audit Committee independence confirmed
- No evidence of export control violations
- Implementation of stronger governance measures
The planned CFO transition and addition of new executive positions (CAO, CCO, General Counsel) demonstrate proactive steps to strengthen corporate governance. These changes, while significant, are part of natural evolution for a rapidly growing company that has reached
The thoroughness of the Special Committee's investigation provides strong legal assurance regarding Supermicro's compliance and governance practices. The review encompassed critical areas including revenue recognition, export controls and related party disclosures, with no material issues found.
The appointment of dedicated compliance and legal executives, including separation of the CFO/CCO roles, significantly reduces regulatory and compliance risks. The implementation of enhanced training programs and guardrail monitoring further strengthens the company's legal and regulatory framework.
The investigation's scope and depth, involving review of 4.1 terabytes of data and 68 witness interviews, demonstrates robust due diligence that should satisfy regulatory requirements and stakeholder concerns.
Special Committee, supported by outside counsel Cooley LLP and forensic accounting firm Secretariat Advisors, LLC, finds no evidence of misconduct on the part of management or the Board of Directors and that the Audit Committee acted independently
No restatement of reported financials expected
Board adopts recommendations of the Special Committee and appoints new Chief Accounting Officer, approves the transition to a new CFO and authorizes additional executive hires, along with other measures to strengthen the Company
Among its findings, the independent Special Committee determined that the resignation of the Company’s former registered public accounting firm, Ernst & Young LLP (“EY”) and the conclusions EY stated in its resignation letter were not supported by the facts examined in the Review, the Special Committee’s interim findings reported to EY on October 2, 2024, or the Special Committee’s final findings.
Key Findings of the Special Committee
On November 5, 2024, the Company announced that the Special Committee’s investigation preliminarily found that the Audit Committee had acted independently and that there was no evidence of fraud or misconduct on the part of management or the Board of Directors. The Special Committee’s final findings support those initial findings, and the Company is now disclosing the details of the Review, along with measures recommended by the Special Committee.
The Special Committee’s investigation was intended to assess whether the information brought to the Audit Committee’s attention by EY, and certain other matters identified during the Review, raised substantial concerns about (i) the integrity of the Company’s senior management and Audit Committee, (ii) the commitment of the Company’s senior management and Audit Committee to ensuring that the Company’s financial statements are materially accurate, (iii) the Audit Committee’s independence and ability to provide proper oversight over matters relating to financial reporting, and (iv) the tone at the top of the Company with regard to rehiring certain former employees and financial reporting.
The Special Committee’s key findings are summarized as follows:
- Management and Audit Committee integrity: The evidence reviewed by the Special Committee did not raise any substantial concerns about the integrity of Supermicro’s senior management or Audit Committee, or their commitment to ensuring that the Company’s financial statements are materially accurate.
- Audit Committee independence: As to the matters investigated by the Special Committee, the Audit Committee demonstrated appropriate independence and generally provided proper oversight over matters relating to financial reporting. The Special Committee also had no reservations about the independence of the Audit Committee and each of its members.
- Appropriate tone at the top: With respect to the rehiring of former employees, the tone at the top of the Company was appropriate and fully consistent with a commitment to proper financial reporting and legal compliance.
Formation of the Special Committee and the Process of Its Investigation
In late July 2024, EY communicated to the Audit Committee concerns about certain matters related to governance, transparency, and the Company’s internal control over financial reporting. In response, the Board appointed a new director to the Board and formed the Special Committee to review these matters. The Special Committee engaged independent outside counsel Cooley LLP and forensic accounting firm Secretariat Advisors, LLC to aid in an investigation on behalf of and at the direction of the Special Committee.
Specifically, as part of its review, the Special Committee investigated issues related to:
- Rehiring certain employees who resigned in 2018 following an investigation in 2017 by the Audit Committee regarding sales and revenue recognition practices (the “2017 Audit Committee Investigation”).
- Current sales and revenue recognition practices, particularly around quarter-ends, as well as with respect to merchandise returns and warranties.
- Export control matters related to prevention of sales or diversion to restricted countries.
- Related party disclosures.
The Special Committee is comprised of Susie Giordano, an independent member of Supermicro’s Board of Directors. Mrs. Giordano, an experienced attorney, joined the Board in August 2024 specifically to lead the Special Committee’s efforts to review the matters outlined above, independent from any existing Directors. Mrs. Giordano has over 25 years of experience advising management and boards of directors, as well as extensive management experience at some of the world’s leading technology companies.
The Special Committee’s rigorous investigation took over three months, with independent counsel devoting over 9,000 hours and the Secretariat forensic accounting team over 2,500 hours for the Review. As part of that process, the following investigative actions were taken:
- Extensive document collection, review, and analysis of roughly 4.1 terabytes of data, consisting of over 9 million documents from 89 individuals and an additional hard drive collection.
- Conducted 68 witness interviews of current and former employees, management, advisors, and Board members.
- The Special Committee employed more than 50 attorneys from Cooley and outside contract review attorneys, and employed a team of forensic accounting specialists from Secretariat.
- Extensive meetings with Deloitte and EY, the Company’s former auditors.
The Special Committee has confirmed that the Company cooperated fully, and that the Company, Board, and the Audit Committee promptly complied with all requests for information, documentary evidence, and access to relevant witnesses.
Detailed Findings for the Specific Issues Investigated by the Special Committee
Rehiring employees
- The investigation focused on the rehiring of nine individuals, either as employees or as independent contractors, who had previously resigned from the Company following the 2017 Audit Committee Investigation.
- The Special Committee regarded the lack of any finding in the 2017 Audit Committee Investigation that these individuals had engaged in conduct that was intended to cause the Company’s financial results to be misstated as an important factor in assessing the Company’s decision to rehire them.
- The Company’s decision to rehire certain individuals was the product of reasonable business judgment.
- The Company generally had appropriate processes for rehiring these individuals and ensuring proper guardrails were in place.
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There were, however, lapses, including in ensuring guardrails were always in place and observed. The Special Committee determined that, because the Company’s Chief Financial Officer/Chief Compliance Officer (CFO/CCO) had primary responsibility for the process of rehiring these employees, he had primary responsibility for process lapses.
- The Special Committee found no evidence indicating that any process lapse resulted from bad faith, improper motives, or lack of regard for accurate financial reporting or compliance, on the part of the CFO/CCO or anyone else.
- These lapses included instances of not promptly informing the Company’s Audit Committee and/or independent auditor of certain rehires or plans to rehire some of these former employees, including not informing EY prior to entering in June 2024 into a now terminated consulting arrangement with the Company’s former CFO, who had resigned following the 2017 Audit Committee Investigation.
- The Special Committee found certain instances where the documentation, tracking, training, and instructions around appropriate guardrails were inconsistent or vague.
Revenue recognition and sales practices
- Based on a thorough review of 52 sales transactions from April 1, 2023 to June 30, 2024, including two sales transactions specifically designated by EY, the Special Committee did not disagree with any of the Company’s revenue recognition conclusions for any quarter during this period.
- The Special Committee reviewed underlying sales transaction information (including sales orders, purchase orders, shipping documents, payment information, and the Company’s revenue recognition determinations), discussed transactions with accounting personnel, and conducted email reviews as appropriate. The sample was focused on sales that included large dollar amounts, involvement of rehires, discussions with now former auditors, customers with high sales concentrations at quarter ends, and/or changes in delivery dates.
- The Review also examined merchandise returns and warranty practices to assess if there was any pattern or practice of shipping non-working or incomplete products near quarter ends.
- Based on its investigation, the Special Committee did not disagree with the Company’s revenue recognition conclusions. Additionally, the Special Committee did not find evidence of a pattern or practice of the Company shipping incomplete products at or near quarter ends to recognize revenue.
- The evidence reviewed by the Special Committee did not give rise to any substantial concerns about the integrity of Supermicro’s senior management or Audit Committee, or their commitment to ensuring that the Company’s financial statements are materially accurate.
- The Audit Committee demonstrated appropriate independence and generally provided proper oversight over matters relating to financial reporting.
Export control matters
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The Special Committee also reviewed 11 specific export transactions noted by EY. The Review focused on whether, at the time of shipment, transactions complied with relevant
U.S. export laws and regulations. The Special Committee also reviewed certain allegations of export control violations contained in a short-seller report released on August 27, 2024 (the “Short Seller Report”). - The Special Committee relied in part on work conducted as part of the Company’s regular compliance processes by outside counsel and on a separate export control review recently conducted by other outside counsel. In addition, the Special Committee investigated sales data from these transactions and conducted a targeted email review and collection of documents from 34 individuals.
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The Special Committee did not see any evidence suggesting that anyone at the Company tried to circumvent export control regulations or restrictions, or that anyone at the Company was aware that any of its products might be diverted to a prohibited end user or location. The Special Committee also did not identify products that were sold to Russian customers or shipped to
Russia in violation of export controls or sanctions laws that were in place when products were shipped. - Based on its Review, the Special Committee concluded it appears the Company has implemented a reasonable program for compliance with applicable export control regulations.
Related party disclosures
- The Special Committee also reviewed the Company’s disclosures regarding related parties in light of allegations in the Short Seller Report.
- The Special Committee concluded that, with respect to the related parties identified in the Short Seller Report, they were (i) previously fully disclosed as required, (ii) not required to be disclosed by applicable disclosure obligations or (iii) in one case, the party became a related party during fiscal year 2024 and will be fully disclosed in the Company’s annual report on Form 10-K when filed.
Measures Recommended by the Special Committee
As a result of these findings, the Special Committee recommended that the Company take the following measures to strengthen the Company’s governance and support the dynamic growth of the business operations:
- Transition to a new Chief Financial Officer: In light of the Company’s rapid recent growth and the Company’s ambition for future growth, the Company should appoint at the soonest practicable time a new CFO with extensive experience working as a senior finance professional at a large public company.
- Appoint a Chief Accounting Officer: The Company should appoint a Chief Accounting Officer, which will create an additional layer of accounting standards and oversight.
- Appoint a Chief Compliance Officer: The Special Committee found that the Company’s ability to properly oversee and monitor guardrails related to the rehired employees was impacted because the CFO/CCO functions were combined longer than anticipated. It recommended that the Company promptly appoint a separate Chief Compliance Officer.
- Appoint a General Counsel and Expand the Legal Department: The Company should appoint a General Counsel and expand the number of in-house attorneys to a level commensurate for a company of Supermicro’s size and complexity, particularly in light of its recent rapid growth and future growth ambitions.
- Improve Training and Guardrail Monitoring: The Company should further invest in its systems and processes to track all (i) training that is not currently included in its computerized tracking, and (ii) guardrail monitoring and reporting.
- Improve Training and Guardrail Review: The Company should evaluate its training program regarding sales and revenue recognition policies and practices, including the appropriate role of accounting personnel in the sales transaction process, as well as streamline and revise its current active guardrails to remove unintended ambiguity from monitoring.
Company Adopts All of the Special Committee Recommendations
The Board has adopted all of the Special Committee’s recommendations. To address the Special Committee’s recommendations, and being mindful of the Company’s rapid business growth over the past two years in helping to lead the AI revolution, the Board has instructed management to add additional experienced, senior talent commensurate with the Company’s size and complexity today and to prepare for its future growth.
Specifically, the Board’s action in adopting all of the Special Committee’s recommendations includes the following updates and planned measures:
- The Company has begun a process to search for a new Chief Financial Officer. David Weigand will continue to serve as the Company’s CFO until the Board has named his successor.
- Additionally, the Company is accelerating its search for a Chief Compliance Officer and for a General Counsel.
- Kenneth Cheung has been appointed Chief Accounting Officer. Mr. Cheung is currently the Vice President of Finance and Corporate Controller of Supermicro and previously served as the Vice President of Operations at the Company.
- The Company will continue expanding and enhancing its training programs as part of its commitment to continuous improvements in its financial controls and compliance processes.
Current Financials
As announced on November 18, 2024, in its compliance plan to Nasdaq, the Company believes it will be able to complete its Annual Report on Form 10-K for the year ended June 30, 2024, and its Quarterly Report on 10-Q for the fiscal quarter ended September 30, 2024 and become current with its periodic reports within the discretionary period available to the Nasdaq staff to grant.
As previously disclosed, the Company does not anticipate any restatements of its quarterly reports for the fiscal year 2024 ended June 30, 2024, or for prior fiscal years.
Cautionary Statement Regarding Forward Looking Statements
Statements contained in this press release that are not historical fact may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may relate, among other things, to (i) the actions the Company will take to adopt and address the Special Committee’s recommendations, (ii) the timing for the Company’s completion of its Annual Report on Form 10-K for the year ended June 30, 2024, and its Quarterly Report on 10-Q for the fiscal quarter ended September 30, 2024 and becoming current with its periodic reports, and (iii) the Company’s anticipation that it will not have any restatements of its quarterly reports for the fiscal year 2024 ended June 30, 2024 or for prior fiscal years. Such forward-looking statements do not constitute guarantees of future performance and are subject to a variety of risks and uncertainties that could cause our actual results to differ materially from those anticipated. Additional factors that could cause actual results to differ materially from those projected or suggested in any forward-looking statements are contained in our filings with the Securities and Exchange Commission, including those factors discussed under the caption "Risk Factors" in such filings.
About Super Micro Computer, Inc.
Supermicro (NASDAQ: SMCI) is a global leader in Application-Optimized Total IT Solutions. Founded and operating in
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