Wall Street Journal

Team 1 Presentation

Accounting & Auditing Research Mohammad Hamza Khawaja

Professor John Li, Ph.D. Jaher Khan
CUNY – Hunter College Bebi Khan
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WSJ Article
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Article Overview

Title: Date Published:

Publisher:
Supermicro Fined $17.5
Million Over Accounting August 26, 2020 Writer:
Wall Street Journal
Violations 6:41 pm ET Dylan Tokar
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Company Overview

Name: Super Micro Computer Inc.

Headquarters: San Jose, California, United States

Sector: Information Technology

Industry: Computer Hardware

Founder: Charles J. Liang

CEO: Charles J. Liang (September 1993-)

Subsidiaries: Super Micro Computer Taiwan Inc., Super Micro Computer B.V.
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Company Profile
• As a global leader in high efficiency server technology and
innovation, Supermicro develops and provides end-to-end green
computing solutions to the data center, cloud computing,
enterprise IT, big data, HPC, and embedded markets
• Further, Supermicro provides:
• Server and storage system integration
• Software upgrade and update services
• Technical documentation services
• Identification service requirements
• Creates and executes project plans
• Conducts verification testing
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Supermicro’s Accounting and Ethical

Violations
Failed to comply with the S.E.C. by aggressively focusing on quarterly financial statements

Supermicro had an aggressive focus on quarterly revenue resulting in a failure by executives to establish and
promote a control environment with an appropriate tone of compliance

Prematurely recognized revenue and understated their expenses

Shipped goods to a customer that didn’t want them delivered for another month. They asked for the
shipment to be rejected, and asked why it was being shipped early, according to the regulator

The regulator said the company booked sales on goods sent to warehouses and not yet delivered to customers,
shipped goods to customers prior to customer authorization and shipped incorrectly assembled goods

Improperly reduced liabilities accrued for its marketing program to avoid recognizing some expenses unrelated
to marketing
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Consequences of the Violations

Since Supermicro violated antifraud, reporting, books and records, and internal controls provisions of the
S.E.C., they were fined $17.5 million

Howard Hideshima (former CFO) settled claims that he had engaged in improper accounting and caused
internal accounting control failures. He agreed to pay $300,000 in illicit proceeds and a $50,000 penalty

Mr. Liang, who the SEC didn’t accuse of misconduct, was required under a related settlement to reimburse
the company $2.1 million in stock profits he received during the time the accounting errors occurred

Supermicro ultimately was unable to file financial reports for nearly two years (2015 and 2016) due to their
unethical practices

All of the above resulted in the suspension of Supermicro’s stock on the NASDAQ
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Remedial S.E.C. Compliance

Supermicro agreed to cease and desist from violating Sections 17(a)(2) & (3) of the Securities Act of 1933 & the
reporting & internal accounting controls provisions of the Securities Exchange Act of 1934 & pay penalties

Hideshima (former CFO), without admitting or denying the findings, has agreed to cease and desist from
committing or causing violations of the reporting & pay disgorgement and prejudgment interests

Liang consented, without admitting or denying the findings, to reimburse Supermicro

The company said it corrected the above mentioned effects of the matters in financial statements filed with the
S.E.C., including its annual report, filed on 17 May 2019, & on Form 10-K for the year ended 30 June, 2017

“We are committed to conducting our business ethically & transparently. We fell short of our standards &
have implemented numerous remedial actions & internal controls to prevent such errors from recurring.”

“Our strengthened financial accounting and management team will help us continue building value for
shareholders & customers as we innovate in high-performance, high-efficiency server & cloud technology.”
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The Importance of Following Ethical &

Accounting Standards

Failure to comply with accounting and ethical standards may lead to a company being
delisted from the NASDAQ plus additional heavy penalties and fines like in this case

Business leaders need to work to ensure their organization is one with high morals,
principles, conduct, and ethics so employees feel comfortable and confident

Employees who believe in your corporate principles, conduct and share your values
are a huge asset to the organization

Unethical businesses mostly have a tendency to lose loyal customers by being more
worried about the books than the company’s outlook itself

Trust is vital for consumers/buyers to feel comfortable and confident with their purchases
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Bibliography

https://www.supermicro.com/en/about

https://www.wsj.com/articles/supermicro-fined-17-5-million-over-accounting-violations-11598481716

https://www.crn.com/news/data-center/supermicro-pays-17-5m-sec-fine-over-alleged-accounting-violations

https://www.bloomberg.com/profile/person/15793808

https://sec.report/Document/0001375365-19-000079/

https://www.nextplatform.com/2015/08/11/the-secret-to-supermicros-quiet-stunning-success/

https://www.accountancydaily.co/us-computer-companys-17m-penalty-accounting-infringements