Super Micro Computer’s stock (SMCI) experienced a significant decline on Wednesday, plummeting over 32% following the resignation of the auditing firm Ernst & Young (EY). The audit firm cited concerns that it could no longer trust the representations made by the company’s management and Audit Committee regarding its financial statements.
In its resignation letter, EY stated, “We are resigning due to information that has recently come to our attention which makes it impossible for us to rely on management’s and the Audit Committee’s representations, and we are unwilling to be associated with the financial statements prepared by management.” This resignation occurred while EY was auditing Super Micro’s fiscal year that ended June 30, 2024.
In an 8-K filing with the SEC, Super Micro expressed its disagreement with EY’s decision and emphasized its commitment to finding new auditors. The company asserted that it does not anticipate any restatements of its quarterly financial results for the fiscal year ending June 30, 2024, or for previous years.
The timing of this announcement is particularly notable as Super Micro has scheduled a business update for November 5, which coincides with Election Day in the United States.
EY’s departure followed a report from Hindenburg Research, issued two months prior, that accused Super Micro of various irregularities, including accounting manipulation. This report allegedly revealed significant “accounting red flags,” undetected related party transactions, and other compliance issues. Following the release of Hindenburg’s findings, Super Micro’s stock suffered further declines, including a nearly 20% drop after it delayed the filing of its annual report.
In a compounded atmosphere of scrutiny, the Wall Street Journal reported that the U.S. Department of Justice is conducting an early-stage investigation into the company, particularly looking into matters related to a former employee accused of accounting violations.
Despite the challenges Super Micro is currently facing, the company remains steadfast in its efforts to resolve these issues and restore investor confidence. As they work to select new auditors and address the allegations raised, there is still potential for recovery in the future.
In summary, while Super Micro Computer is navigating significant turbulence in stock performance and regulatory scrutiny, its commitment to transparency and resolution could lead to a rebuilding of trust among investors and a stabilizing of its financial position.