Hindenburg Shock! AI Stock Falls 19%, Loses $6.1 Bn M-Cap After Short Seller's Allegations; 10:1 Split Soon

US-based Hindenburg has found a new prey, and its effect has been the classic old case on the company. Nasdaq-listed tech company Super Micro Computer Inc nosedived by over 19% on the exchange, while losing over $6.1 billion in market cap. Investors panicked after the tech player delayed its annual report following the short seller's allegations. This comes as a drawback for Super Micro who was going to split its shares into the ratio of 10:1 in October.

Hindenburg claims to have fresh evidence on Super Micro Computer for accounting manipulation, sibling self-dealing, and sanctions evasion.

Right after the allegations surfaced, the AI company, Super Micro's share price witnessed a frenzy of selling. Overnight, the stock ended at $443.49 apiece, down by 19.02%. Overall, on August 28, the AI stock nosedived by nearly 27.8% to hit an intraday low of $395.18 apiece.

On the closing price, Super Micro has lost about $6.1 billion of market cap, to a valuation now at $443.49 billion.

The Hindenburg allegations come ahead of Super Micro's plan for stock sub-division in the ratio of 10:1 which is expected to be effective from October 1, 2024.

Super Micro Computer Inc. is a $35 billion server maker based in Silicon Valley, California that has ridden the wave of AI enthusiasm, it said.

Hindenburg said, "Our 3-month investigation, which included interviews with former senior employees and industry experts as well as a review of litigation records, international corporate and customs records, found glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues."

The short seller pointed out that in 2018, Super Micro was temporarily delisted from Nasdaq for failing to file financial statements. By August 2020, the company was charged by the SEC for "widespread accounting violations," mainly related to $200+ million in improperly recognized revenue and understated expenses, resulting in artificially elevated sales, earnings and profit margins.

Hindenburg also alleged that in less than 3 months after paying a $17.5 million SEC settlement, Super Micro began re-hiring top executives who were directly involved in the accounting scandal, per litigation records and interviews with former employees.

A former salesperson told Hindenburg that, "Almost all of them are back. Almost all of the people that were let go were the cause of this malfeasance."

Also, it said, as per a lawsuit filed in April 2024, Super Micro waited only 3 months after the SEC settlement before restarting "improper revenue recognition," "recognizing incomplete sales," and "circumvention of internal accounting controls".

To back its allegations, Hindenburg questioned a lot of employees of Super Micro whose identities weren't revealed in the report.

Former employees told Hindenburg that Super Micro's business culture has not improved. Former senior sales director: "I don't think the behaviour of the company in many ways has changed in the 5 years since I started, and I started shortly after that delisting problem."

"Beyond fresh questions around its revenue accounting, we found that Super Micro's relationships with both disclosed and undisclosed related parties serve as fertile ground for dubious accounting," it said.

"All told, we believe Super Micro is a serial recidivist. It benefitted as an early mover but still faces significant accounting, governance and compliance issues and offers an inferior product and service now being eroded away by more credible competition," Hindenburg said.

Hindenburg also made a revelation related to Super Micro's CEO Charles Liang. Super Micro was co-founded by current CEO Charles Liang, an electrical engineer and systems designer, and his wife Sara (Chiu-Chu) Liu, an accountant.

As per Hindenburg, related party entities, one partially owned by Super Micro CEO Charles and controlled by his brothers, have been paid up to $983 million in the last 3 years. The short seller claims that often, manufacturing companies seek to centralize their factories and supply chain with reputable, dependable suppliers to streamline costs and product development. Contrary to this normal approach, the short seller said, "Super Micro relies heavily on suppliers privately owned by its CEO's brothers."

Hence, Hindenburg said, Super Micro's relationship with its family-owned related parties seems oddly circular. There are two related parties in the limelight and they are Ablecom and Compuware whose CEOs are Charles brothers.