Super Micro finds no evidence of fraud, will replace CFO

Super Micro Computer Inc. said an independent review of its business found no evidence of misconduct but recommended that the server maker appoint new top financial and legal leadership.

A review by a special board committee, alongside attorneys from Cooley LLP and forensic accounting firm Secretariat Advisors, found “no evidence of misconduct on the part of management or the board of directors and that the audit committee acted independently.” 

As a result of the findings, the committee recommended Super Micro install a new chief financial officer, chief compliance officer and general counsel, it said in a statement Monday. “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,” Super Micro said in the statement.

The shares jumped as much as 22.5% on Monday in New York.

Super Micro does not expect changes to previously issued financial results for the most recent fiscal year, it said. Kenneth Cheung, formerly vice president of finance, will be the company’s new chief accounting officer. And the company has begun the process to search for a new CFO to replace David Weigand.

It’s been a tumultuous year for Super Micro. The maker of high-powered servers missed an August deadline to file its annual financial report and its auditor, Ernst & Young LLP, resigned in October, citing concerns about the company’s governance and transparency. The company is also facing a U.S. Department of Justice probe following a damaging report from short seller Hindenburg Research.

EY communicated concerns to Super Micro’s audit committee in July. In response, the board investigated revenue recognition practices, export control policies, the rehiring of employees who had resigned following earlier accounting issues, and disclosure of related party transactions. The investigation determined that “the conclusions EY stated in its resignation letter were not supported by the facts examined in the review.”

In November, Super Micro appointed BDO USA as its independent auditor and submitted a plan to come into compliance with Nasdaq listing requirements. Completing the internal investigation clears a major hurdle to filing its audited financials, wrote Woo Jin Ho, an analyst at Bloomberg Intelligence.

When investigating the rehiring of nine individuals who had resigned from the company following a 2017 investigation, the special committee found that the decisions to rehire were “the product of reasonable business judgment.”

Still, there were lapses “in ensuring guardrails were always in place and observed,” the special committee found. That includes not informing EY before entering into a consulting arrangement with Super Micro’s former CFO, who had resigned following the 2017 investigation. That arrangement has since been terminated. 

Chief Financial Officer David Weigand held “primary responsibility” for these lapses, the committee found. He will continue to serve as the company’s CFO until the board has named his successor, Super Micro said. The 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.”

In 2020, Super Micro paid $17.5 million to resolve a Securities and Exchange Commission investigation into its financial accounting and disclosures for fiscal years 2014 through 2017. Super Micro didn’t admit to or deny the regulator’s allegations as part of its settlement.

In addition to appointing new financial and legal leadership, the company will improve its training related to sales and revenue recognition policies. The investigation involved analysis of over 9 million documents and 68 witness interviews, Super Micro said. It also included “extensive meetings” with Deloitte & Touche LLP and EY, the company’s former auditors.