Supermicro Pays $17.5M SEC Fine Over Alleged Accounting Violations

According to the SEC, former Supermicro CFO Howard Hideshima allegedly encouraged employees to maximize revenue at the end of quarters without putting controls in place to accurately record it, which resulted in the company ‘improperly and prematurely’ recognizing revenue.

Supermicro is paying a $17.5 million fine over allegations by the U.S. Securities and Exchange Commission that the server builder and its former CFO engaged in “widespread accounting violations.”

The SEC announced the charges against Supermicro, which does business as Super Micro Computer Inc., and former CFO Howard Hideshima on Tuesday, saying that the San Jose, Calif.-based company prematurely recorded revenue and understated expenses for at least three years.

[Related: Supermicro Cuts Sales Guidance By $30M Due To Coronavirus Pandemic]

The company’s stock price was down more than 3.3 percent in after-hours trading.

A Supermicro spokesperson said the settlement with the SEC has been concluded and that it had already corrected the issues in financial statements with the commission.

“We are pleased to have settled this matter and put this investigation behind us,” Charles Liang, Supermicro‘s CEO and chairman, said in a statement.

Liang added that the company is “committed to conducting our business ethically and transparently.”

“We fell short of our standards, and we have implemented numerous remedial actions and internal control enhancements to prevent such errors from recurring,” he said. ”Our strengthened financial accounting and management team will help us continue building value for shareholders and customers as we innovate in high-performance, high-efficiency server and cloud technology.”

The charges come after Supermicro relisted on the Nasdaq in January after it was delisted in 2018 over a failure to file an annual report for its fiscal 2017 year.

According to the SEC, Hideshima allegedly encouraged employees to maximize revenue at the end of quarters without putting controls in place to accurately record it, which resulted in the company “improperly and prematurely” recognizing revenue.

These improper methods, the SEC alleged, include recording revenue based on goods sent to warehouses, not customers; shipping products to customers before deals were authorized; and shipping “misassembled” goods to customers.

As for understating expenses, the SEC alleged that Supermicro “misused” its cooperative marketing program that reimburses customers for marketing costs by failing to record unrelated expenses, which included Christmas gifts, reducing the liabilities it accrued for the program.

Despite being aware of these actions, Hideshima “failed to properly address them,” according to the SEC’s orders. The orders also stated that the former CFO allegedly signed or approved filings with the SEC that “contained materially misstated financial statements, knowingly circumvented certain of Super Micro’s internal accounting controls.”

The SEC said Supermicro, which is not admitting or denying the findings, has agreed to pay the $17.5 million penalty and agreeing to a cease and desist from violating certain provisions of the U.S. Securities Act of 1933 as well as the Securities Exchange Act of 1934.

Hideshima has also agreed to cease and desist from violating the provisions and will pay a $50,000 penalty, plus $300,000 in disgorgement and pre-judgement interest.

Liang, who was not charged, has agreed to reimburse Supermicro for $2.1 million in stock sale profits without admitting or denying the finding.