It’s better not to get involved: Ernst&Young refused to audit Supermicro, whose shares immediately collapsed by almost a third

Shares of Supermicro (Super Micro Computer Inc.) fell in price by 31% after the hired auditor Ernst & Young LLP refused to further audit the company’s activities, SiliconAngle reports. Ernst&Young, after studying the documents and reports, refused to put its signature on them and stopped further audit attempts.

Today Supermicro is one of the leading suppliers of equipment for data centers, it is one of the three largest buyers of NVIDIA chips. Ernst & Young was hired to audit earnings data for the past fiscal year, which ended June 30. Four months after the company took over the business, it raised concerns about Supermicro’s financial reporting.

In response to concerns raised by auditors, Supermicro’s board of directors formed a committee to review its finances, which hired a law firm and a forensic financial firm. The study of preliminary reports from the hired companies led to Ernst & Young making the final decision to refuse cooperation with Supermicro. The auditors said they could no longer rely on statements from management and the committee and did not want to be associated with reports prepared by Supermicro management.

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In August, the latter delayed filing its annual financial report after Hindenburg Research published a scathing report on the company’s performance that also weighed heavily on its share price. Among other things, non-compliance with export controls was mentioned, as well as agreements with subsidiaries on non-market terms. Following the publication of the report, the Department of Justice began its investigation into Supermicro’s activities. In particular, it became known that the authorities requested information about possible manipulations with financial statements.

Supermicro’s financial transactions previously came to the attention of the authorities in 2020, when the company paid $17.5 million to stop the US Securities and Exchange Commission (SEC) investigation into its accounting statements. In September 2024, the law firm Robbins Geller Rudman & Dowd LLP disclosed that the class action lawsuit Averza v. Super Micro Computer accused the server hardware manufacturer and certain of its executives of violating the Securities Act of 1934.

In its latest filing with the SEC, the company said it is seeking a new auditor to replace Ernst & Young and does not expect the resolution of any of the issues raised by auditors or before the special committee to result in any changes to its quarterly reports for fiscal 2024, nor does it expect and for previous financial years.