US-based short seller Hindenburg Research put out a fresh report on Tuesday, targeting Silicon-valley company Micro Super Computer, alleging that it found evidence of undisclosed related party transactions, sanctions, and export control failures, and customer issues.
The short seller, in its long report, claimed that it had carried out a three-month investigation, which included interviews with former senior employees and industry experts as well as a review of litigation records, and international corporate and customs records.
Hindenburg Research alleged that it "found glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues."
Hindenburg's report has sparked concerns among investors and industry observers, leading to a potential impact on Super Micro's stock price and reputation. Notably, the shares of Super Micro Computer were tracking lower at SMCI -2.64 per cent on the heels of a short-seller report about the server maker.
Super Micro Computer Inc is a USD 35 billion server maker based in Silicon Valley, California, which is doing well amid the AI boom.
In 2018, Super Micro was temporarily delisted from Nasdaq for failing to file financial statements, Hindenburg claimed. By August 2020, the company was charged by the SEC for "widespread accounting violations," mainly related to over USD 200 million in improperly recognized revenue and understated expenses, resulting in artificially elevated sales, earnings, and profit margins, the short seller report stated.
The research firm revealed it took a short position in the company's stock, which means the decline has been profitable for Hindenburg. But it didn't reveal the size of its position or when it began shorting Super Micro shares.
Notably, Super Micro shares have risen 93 per cent this year. But over the past six months, the stock has pulled back 36 per cent.
"Less than 3 months after paying a USD 17.5 million SEC settlement, Super Micro began re-hiring top executives that were directly involved in the accounting scandal, per litigation records and interviews with former employees," the Hindenburg report read.
The Hindenburg report, citing a lawsuit filed in April 2024, claimed that Super Micro waited only three months after the SEC settlement before restarting "improper revenue recognition," "recognizing incomplete sales," and "circumvention of internal accounting controls".
Even after the SEC settlement, pressure to meet quotas pushed salespeople to stuff the channel with distributors using "partial shipments" or by shipping defective products around quarter-end, Hindenburg said it found after interviewing the company's former employees and customers.
Further, Hindenburg said its investigation found that Super Micro's relationships with both disclosed and undisclosed related parties "serve as fertile ground for dubious accounting."
"Besides accounting issues and sanctions evasion, competition and quality concerns have resulted in major companies dropping Super Micro entirely or reducing their share," the Hindenburg report read.
Following publication of any report or letter, Hindenburg tends to trade in such securities covered therein and may be long, short, or neutral at any time thereafter.
After extensive research, Hindenburg said it has taken a short position in shares of Super Micro Computer, Inc, the short seller's initial disclosure. The company has yet to respond to the allegations, and it remains to be seen how Super Micro will address these claims and reassure its stakeholders.
A short seller in the securities market books gains from the subsequent reduction in the prices of shares. (ANI)
