- The Securities and Exchange Commission (SEC) has charged computer server producer Super Micro Computer and its former CFO, Howard Hideshima, with prematurely recognizing revenue and understating expenses over a three-year period.
- Hideshima and the company's other executives pushed employees to maximize end-of-quarter revenue while failing to maintain internal accounting controls to accurately record revenue, the complaint alleges.
- As a result, the company improperly recognized revenue. Among other things, it recognized revenue on goods sent to warehouses but not yet delivered to customers, shipped goods to customers prior to customer authorization, and shipped mis-assembled goods to customers.
As part of its efforts, the company misused its cooperative marketing program, the SEC says. That program entitles customers to reimbursement for a portion of cooperative marketing costs, but the company reduced the liabilities accrued for the program to avoid recognizing expenses unrelated to marketing.
Hideshima was on notice of these and other similar practices, but failed to properly address them, the SEC says. He also signed or approved filings with the Commission containing materially misstated financial statements, and knowingly circumvented internal accounting controls.
Company CEO Charles Liang, while not charged with misconduct, must reimburse the company $2.1 million in stock profits that he received while the accounting errors were occurring, pursuant to the clawback provision of the Sarbanes-Oxley Act.
"Reporting revenue in the wrong period gives investors a distorted view of a company's financial condition," associate director of the SEC's Division of Enforcement Melissa Hodgman said. "The SEC will continue to hold executives accountable when they exploit insufficient internal controls."
Without admitting or denying the findings, Super Micro Computer has agreed to cease and desist from violating cited provisions in the Securities Act of 1933 and 1934, and to pay a $17.5 million penalty. Hideshima, without admitting or denying the findings, has agreed to cease and desist from committing or causing violations of cited provisions, and to pay disgorgement and prejudgment interest totaling more than $300,000, and a $50,000 penalty.
“We are pleased to have settled this matter and put this investigation behind us," Liang said in a statement. "Supermicro is committed to conducting our business ethically and transparently. We fell short of our standards, and we have implemented numerous remedial actions and internal control enhancements to prevent such errors from recurring. Our strengthened financial accounting and management team will help us continue building value for shareholders and customers as we innovate in high-performance, high-efficiency server and cloud technology.”