A class action lawsuit was filed against Super Micro Computer (SMCI) by Levi & Korsinsky on August 30, 2024. The plaintiffs (shareholders) alleged that they bought SMCI stock at artificially inflated prices between August 10, 2021 and August 26, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Super Micro Computer stock during that period can click here to learn about joining the lawsuit.
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Super Micro Computer is an American technology company that specializes in the designing and manufacturing of high-performance servers for data centers. It also offers server management software solutions and storage systems. It is considered one of the prominent players in the AI revolution as it caters to the needs of the data center, cloud computing, AI, 5G, and edge computing markets.
SMCI’s claims about its financial performance and the allegations by short seller Hindenburg Research are at the heart of the current complaint. The plaintiffs also allege that the company recognized revenue prematurely and failed to implement adequate financial controls.
Super Micro Computer’s Misleading Claims
According to the lawsuit, Super Micro Computer and two of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the reporting of sales and expenses and ancillary issues from SEC filings and related material.
For instance, during the annual report released on August 27, 2021, SMCI noted that it sourced services such as contract designing, manufacturing, and warehousing services from Ablecom and its affiliate Compuware, both of which are partly owned by SMCI CEO’s brothers. In the same report, SMCI stated that Ablecom manufactured approximately 91.8%, 95.5%, and 96.3% of the chassis included in SMCI’s products sold in Fiscal 2021, 2020, and 2019, respectively.
Further, in a Q3 FY22 report, SMCI noted that it had stopped sales to Russia, Belarus, and the restricted areas in Ukraine, following restrictions imposed by the U.S. government.
Additionally, in an annual report released on August 29, 2022, SMCI noted that it paid Ablecom $8.3 million, $8.6 million, and $7.6 million, for FY22, 2021, and 2020, respectively, for securing designing services, tooling assets, and other costs.
Unfortunately, subsequent events (discussed below) revealed that Super Micro Computer continued to be involved in multiple related party transactions. It also continued selling its products in Russia.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding critical information about the company’s business practices and prospects during the Class Period. Importantly, the Defendants are accused of misleading investors about SMCI’s related party contracts, revenue and expense claims, and exposure to Russian markets.
The information became clear on August 27, 2024, when Hindenburg Research released a report alleging multiple accounts of deception by Super Micro Computer. The report cited “glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and control failures, and customer issues.”
Hindenburg’s report concluded that although SMCI was at the forefront of the AI revolution, it was a serial offender with several accounting, governance, and compliance issues. Plus, the report alleged that SMCI offered poor quality products and services as compared to competitors. SMCI shares fell 19% on August 28, following the short seller report.
To conclude, Super Micro Computer allegedly misled investors about its revenues, expenses, and related party transactions.
As per TipRanks’ Technical Analysis Tool, SMCI stock is trading at a price below its 20-day and 50-day moving average, making it a Sell. Meanwhile, Wall Street’s consensus rating is a Hold based on three Buys, 10 Holds, and one Sell recommendation.
